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Prepare for no-deal warns the BOE

GBP - British Pound

Sterling has lost some of it's recent gains overnight after Brexit trade talk concerns crept in. As we enter the 3rd day of discussions the Bank of England has advised banks to prepare for a no-deal possibility causing Sterling to slide. Prime Minister Boris Johnson has until the end of June to request an extension but its widely reported he will rule this out, this leaves the Pound under pressure and all gains made could be wiped off come early July.

Data yesterday showed the services sector for the UK signalled a steep reduction in business activity during May. The figure was a slight uptick from last month’s 27.8, posting 29.0, and the low number was exclusively linked to a slump in business and consumer spending amid the coronavirus disease pandemic. Pound was unmoved following the release where cable floated just below the 1.26 mark for most of Wednesday. Fresh Brexit concerns, as mentioned above, have caused GBP/USD to slip overnight heading towards 1.25 and GBP/EUR has moved back below the 1.12 handle.

On the docket today we have just the one release, construction PMI. Contraction is expected but will be largely brushed aside and attention will be on trade talk developments on Thursday.

Key Movers

The Euro held strong during Wednesday and disregarded a contraction in May’s economic activity based on the PMIs and the increase in the jobless rate, this all on the expectation the ECB will expand its bond buying programme. The Pandemic Emergency Purchase Programme (PEPP) is expected to get a huge cash injection of 500 billion to help recovering nations steer through the economic downturn caused by Covid-19. The Euro was further propped up by the announcement from Germany, the Chancellor pledged a 130bn EUR stimulus package for the country, exceeding the top end of expectations by 30%.

The USD has been heavily sold this week as risk on mood continues to dominate, along with trade tension re-surfacing between China and the US and riots across the country. On the data front, figures released yesterday showed companies cut nearly 2.8 million jobs in May, but that was far less than Wall Street estimated. This could be early signs the worst is over but we do expect a slow and steady return to more normal numbers. We get some further employment data today, this coming in the form of unemployment claims before attention turns to Friday’s Non-farm employment change. We expect the Dollar to remain in its current ranges and cannot see a re-bound just yet with so many events to contend with.

Expected Ranges

GBP/USD: 1.2450 - 1.2550 ▼

GBP/EUR: 1.1105 - 1.1205 ▼

GBP/AUD: 1.8050 - 1.8200 ▼

GBP/NZD: 1.9450 - 1.9550 ▼