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Brexit fears begin dragging on the pound

GBP - British Pound

Sterling suffered losses versus the USD and the EUR at the back end of last week, as fears over a no-deal Brexit heightened. Analysts at JP Morgan have now calculated a 30% chance of a no-deal Brexit come the end of the year, which would see the pound back down to the levels we saw at the height of the Coronavirus outbreak in March.

Andrew Bailey, the new governor of the Bank of England, only added to the dousing of Sterling's weakening fire on Thursday and Friday, stating in front of the Treasury Select Committee that the fallout on the economy from the virus could be 'worse than initially thought'. However, economists are hoping for a bounce bank in consumer spending and GDP in the UK, after children are returning to school and people are returning back to their offices across major cities.

There remains an impasse in Brexit negotiations, as Boris Johnson, UK prime minister, remains steadfast on the goal posts he has set. He has stated that there is no point looking beyond October 15th when, at the moment, they are no where near agreeing any type of trade deal. There are also hints that the legislation around the Irish backstop could be negated by the government if Europe don't start complying with some of the trade deal suggestions. Whether this is simply an empty threat, or an admittance that we are going down a no-deal Brexit route, is yet to be seen.

All in all, this is to be an interesting week for the pound. With data very light on the ground, focus will remain on political sentiment, which will keep volatility up and people guessing more than ever on Sterling's direction.

Key Movers

The US Dollar has been on the back foot in the last few weeks, and Friday's poor jobs data did nothing to ease the concerns on the other side of the pond. Uncertainty is rife Stateside, with questions unanswered around how the economy will cope once the measures put in by the administration and the Fed are slowly eased, much like the ending of the Furlough scheme here in the UK. Many are speculating that an extension to the interventions are required if the US isn't to enter a deep and long recession.

Covid cases in the US have probably peaked, but concerns over a second wave remain rife as we head into the winter period and this will continue to play on the USD. Is there the possibility that EUR/USD could head to 1.25? Some analysts think that the US Dollar could weaken further.

The ECB meet on Thursday to discuss monetary policy, which should see the single currency experience some volatility. There are suggestions that the central bank may look to artificially decrease the EUR so that goods become more competitive.

There is a US bank holiday today and US employment data this week, which may continue to set the time for US dollar direction.

Expected Ranges

GBP/EUR: 1.1080 - 1.1175 ▲

GBP/USD: 1.3120 - 1.3265 ▼

EUR/USD: 1.1780 - 1.1860 ▲

GBP/AUD: 1.7950 - 1.8180 ▼

GBP/NZD: 1.9510 - 1.9860 ▲