GBP tumbles as Irish border back in focus

Signs that the UK and EU are still at loggerheads regarding the Irish border yesterday saw the pound slump.

The pound is flat against all of its peers with the exception of the Australian dollar this morning as markets await today's data. GBP/EUR is stuck €1.1270, GBP/USD is flat at US$1.3745 GBP/AUD has risen 0.4% to AU$1.7788, but GBP/NZD is flat at NZ$1.9072 and GBP/CAD at C$1.7645.

It’s a busy day for data all around today. Keep reading to see what is likely to threaten pound Sterling’s stability…

What’s been happening?

The issue of the Irish border once again returned to haunt the pound yesterday, after Theresa May immediately rejected the EU’s suggestion that Northern Ireland remains in regulatory alignment with the customs union.

What will happen on the border between Northern Ireland and the Republic of Ireland was a discussion that very nearly derailed the first phase of negotiations before Christmas, so signs that an agreeable solution has not been found threaten to delay the start of trade talks, which are meant to begin this month.

As a result, pound Sterling slumped across the board.

The GBP/EUR exchange rate was additionally undermined by strong German unemployment data, which revealed that the number of jobless has fallen by a larger-than-expected -22,000.

Although overall, Eurozone consumer price growth did weakened to 1.2% from 1.3% as forecast, the core consumer price index matched expectations to remain steady at 1%.

GBP/USD made losses in the region of -1% yesterday, after above-forecast US GDP data for the fourth quarter.

Although the actual growth figure slipped as expected from 2.6% to 2.5% quarter-on-quarter, the GDP product price index remained at 2.4% instead of weakening.

This is a positive sign as far as inflation is concerned, helping to firm bets that the Federal Reserve may even have to hike interest rates four times this year.

What's coming up?

Today’s UK Markit manufacturing PMI for February could cause significant volatility for the pound.

January’s index weakened significantly, and forecasts are for a minor dip from 55.3 to 55 this time around.

This would start markets fretting that tomorrow’s construction and, more importantly, Monday’s services index are also likely to show weakness.

GBP/EUR could come under pressure from today’s January Eurozone unemployment rate, which is expected to show the rate of joblessness fell from 8.7% to 8.6%.

Meanwhile, the headline act on the US data calendar will be the personal consumption expenditure data for January - the Federal Reserve’s preferred measure of inflation.

A stronger-than-expected result here would further lift the likelihood that there will be four rounds of monetary tightening this year and therefore GBP/USD could quickly resume its tumble.

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.