Brexit impact analysis predicts ‘lost decade’ – GBP weakens

A new Brexit impact assessment, released by Mayor of London Sadiq Khan, dragged the pound lower with its gloomy conclusions yesterday.

The pound is tentatively recovering so far this morning. GBP/EUR is slightly below opening levels at €1.1233, but GBP/USD is holding onto opening levels at US$1.3546. GBP/AUD has climbed 0.3% to AU$1.7211, GBP/NZD is also up 0.3% to NZ$1.8705, and GBP/CAD has climbed 0.2% to C$1.6998.

What did the Brexit report say that caused such concern on the market? Read on to find out…

What’s been happening?

The pound tumbled against the euro but was able to hold minor gains versus the US dollar yesterday.

Markets were unsettled by new analysis commissioned by Sadiq Khan, Mayor of London, which concluded a no-deal Brexit would result in the UK economy being £50 billion worse off and experiencing a ‘lost decade’, as well as shedding half a million jobs.

Some of the damage caused to the pound by these predictions was later counteracted by findings from the latest Bank of England (BoE) Credit Conditions and Bank Liabilities Surveys.

The BoE’s latest research showed that once again UK loan providers were tightening their lending criteria and reducing the pool of available unsecured credit, which will help to control the UK’s high level of household indebtedness.

The euro was sent soaring by the minutes from the latest European Central Bank (ECB) meeting, which took place in December last year.

The minutes saw policymakers conclude that, if economic data continued to print strongly, their guidance on monetary policy would soon need to evolve, suggesting members of the Governing Council are looking past quantitative easing and focussing once more on interest rates.

A six-year high growth rate for the German economy during 2017 and better-than-expected Eurozone industrial production figures further gave investors reason for optimism.

GBP/USD managed to hold some gains as the euro’s strength weighed on the US dollar, and markets were disgruntled by a sharp and unexpected uptick in the number of initial jobless claims reported in the latest release.

What's coming up?

Brexit and the monetary policy outlook will likely weigh on the pound and euro respectively in the absence of any significant UK or Eurozone data.

The US data calendar promises plenty to keep markets occupied, however. December consumer price figures and advance retail sales figures are scheduled for release – GBP/USD could make some gains here, given that the forecasts aren’t particularly positive.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.