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Sterling sell-off deepens amid ongoing Brexit row

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9 September 2020

Written by
Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

The pound was once again one of the worst performing major currencies in the world on Tuesday, tumbling back below the 1.30 level versus the US dollar amid ongoing concerns surrounding Brexit.

T
he UK government yesterday admitted that its plans to introduce legislation that allowed ministers to change the Brexit Withdrawal Agreement would break international law. European Union officials have called the UK’s demands as unacceptable, while Boris Johnson has warned that Britain will walk away from the negotiating table in mid-October should not common ground be reached.

With talks seemingly going nowhere, investors have grown increasingly concerned over the possibility of a ‘no deal’ at the end of the transition period, a scenario described by German finance minister Olaf Scholz this week as a ‘real disaster for Britain’. This has triggered the largest sell-off we’ve seen in sterling in a number of weeks, with the pound down 2% already for the week to its lowest level versus the US dollar since late-July.

Euro drifts lower as investors await ECB announcement

Risk currencies in general were weaker for the second straight day on Tuesday, while stock markets continued to move lower following some rather concerning headlines surrounding US-China trade relations. President Trump claimed earlier in the week that the US would ‘end its reliance’ on China, whether by ‘decoupling’ or putting massive tariffs on Chinese imported goods.

The prospect of a dovish tone of communications from the European Central Bank at its meeting this Thursday has further weighed on EUR/USD in the past few days, with the pair now back trading around its lowest point since 21st August. As we mentioned in our ECB preview report, we think that there is a real risk that President Lagarde attempts to talk down the value of the euro tomorrow, given the impact that a strong currency has on both suppressing inflation and worsening export competitiveness.

With no real economic data releases of note out of the major areas on Wednesday, we think that expectations for tomorrow’s ECB announcement could begin to dominate the narrative in the markets today. The Bank of Canada’s latest interest rate announcement may also come into focus. We expect no change in policy, although policymakers may strike a more optimistic note given recent improvements in macroeconomic data.

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