Morning Commentary: Brexit and the British Pound

A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.

Brexit and the British Pound   Share this story: Alan Rose Foreign Exchange Head Trader

Markets react to every soundbite and statement regarding the Brexit negotiations. The British pound (GBP) has recently rallied off of its yearly lows on the back of optimism regarding the Brexit negotiations combined with better U.K. data boosted by a general weakening of the U.S. dollar. Overnight, the GBP hit its best levels since July, but there has been an unfortunate reversal of fortune; the GBP has tanked and is the weakest of the majors today.   PM Theresa May has made a series of comments this morning regarding the ongoing Brexit negotiations and they were all negative. “We are at an impasse”, “no deal is better than a bad deal” and “I will not break up my country” are some of the statements that have caused the GBP to crash and drop by nearly 1.35% on the session. Part of her tough language is to bolster her standing within the Tory party as the Tory party has their annual conference in less than two weeks, but part of it is related to the frustration of the negotiations where both sides are equally dug in.   The EU purposely needs to give the appearance of taking a tough stance with the U.K. as they do not want to set a precedent for any other EU countries that would contemplate an exit. Negotiations will continue and time is slowly running out with expected deadlines fast approaching. Continue to expect the GBP to respond to any and all headlines related to a more optimistic or pessimistic outcome.   HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: The EZ Composite PMI reading for September was a disappointment falling from 54.5 to 54.2…this is the lowest reading since May. Manufacturing export orders fell to their lowest levels in five years. This report, combined with a weakening GBP, has taken the luster off of the euro after the euro made new monthly highs overnight. Canadian retail sales for July came in at expectations at 0.3% and ex-autos were stronger than expected at 0.9%. Canadian CPI for August came in at -0.1% after the previous reading of 0.5%; CPI YoY fell from 3.0% to 2.8%. The Canadian dollar is slightly weaker on the session.

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