Daily Currency Update

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Could Sterling's woes return?

GBP - British Pound

With more and more negotiation uncertainty and the increased risk of a no deal Brexit, Sterling could be under pressure in the coming weeks. Boris Johnson's self imposed October 15th deadline is looming ever larger, and with it, the chances of a no deal Brexit have now increased in some camps to as high as 50%. Typically, August has been a time when people have been bearish on the pound, but this year, the opposite has taken place, leaving room for some sterling weakness in the coming weeks.

Indeed, even with a limited deal in place, the change in UK-EU trade terms would leave the UK at risk of a slower recovery versus the other major global economies, leaving very little room for sterling to go much higher in the short term. A no deal scenario could be catastrophic for the currency, coupled with an increased likelihood of the Bank of England easing monetary policy further and sending interest rates into the negative, sterling could then be very much on the back foot and back to the levels we saw at the height of the pandemic.

Key Movers

Macron, the French PM, spoke yesterday along with Boris Johnson. They both agreed on the paramount importance of making meaningful progress on the Brexit negotiations this month and reaching a conclusion on talks quickly. The Euro remained tame and didn't react much to the words of the French PM, though this maybe the quiet before the storm, as negotiations develop this week.

Contentious issues such as fisheries and financial services will be discussed today and tomorrow respectively, and the outcome of these discussions could see some volatility, particularly with the GBP versus the Euro.

Boris Johnson will commence talks today, focusing on three main issues:

(1) The current Brexit divorce deal is 'contradictory'
(2) There needs to be a re-write to 'protect the Union'
(3) He believes the current UK-EU Withdrawal Agreement is 'legally ambiguous' and would leave Northern Ireland isolated from the rest of the UK, something that was 'unforeseen' when he agreed to it last year.

All in all, a lot of uncertainty lies ahead here.

Expected Ranges

GBP/EUR: 1.1080 - 1.1165 ▼

GBP/USD: 1.3090 - 1.3170 ▼

EUR/USD: 1.1790 - 1.1865 ▲

GBP/AUD: 1.7920 - 1.8145 ▼

GBP/NZD: 1.9520 - 1.9785 ▲