GBP slumps as Brexit trade negotiations greenlighted but delayed until March

The UK was given the green light on Friday to move ahead to the next phase of Brexit negotiations, but the pound was on poor form.

The pound starts the week on a mixed footing today, with Sterling's performance so far more positive than negative. GBP/EUR is stuck around opening levels at €1.1333, while GBP/USD has climbed 0.3% to US$1.3352. GBP/AUD is up 0.1% to AU $1.7416, GBP/NZD is down -0.1% at NZ$1.9002, and GBP/CAD has risen 0.2% to C$1.7159.

So what exactly was it that caused the pound to weaken even though markets have been desperate for phase two of Brexit talks to begin? Read on to find out…

What’s been happening?

The pound ended last week on poor form, shedding the gains made during the preceding days.

The European Council agreed that the UK had made sufficient progress in the first phase of Brexit negotiations to move on to the second, yet markets were not happy.

Numerous officials warned that the next stage could be even more difficult than the first, reminding markets that it had taken nine months for the UK to resolve what was supposed to have been swiftly concluded.

Additionally, European Commission President Jean-Claude Juncker claimed that negotiations on trade wouldn’t start until March in all likelihood, meaning the recent scrambling by the UK to finalise phase one talks in December had done little to speed up discussions.

Despite a thin Eurozone data calendar, GBP/EUR slumped before the weekend.

The only Eurozone ecostats of note revealed a sharp slump in the trade surplus during October, but this was not enough to derail the euro.

GBP/USD dropped lower on Friday, although markets were not feeling particularly confident about the US dollar either.

After recent developments in the Senate and House of Representatives raised hopes President Donald Trump will finally be able to enact his plans for tax reform, markets were back to worrying that nothing will ever get done.

What's coming up?

Manufacturing data from the Confederation of British Industry (CBI) could cause volatility for the pound today.

The trends selling prices and trends total orders figures will show whether UK industry was seeing accelerating or decelerating demand this month and give some clues upon the future place of inflation.

Today’s Eurozone November consumer price index figures are simply the finalised versions of earlier estimates, but they could still cause some turbulence for the euro if they are unexpectedly revised higher or lower.

With little of interest on the US data calendar, markets may return to ruminating on the future of tax reform.

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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.