Sterling unsettled by start of Brexit talks and new MPC member

It was a busy day for the pound yesterday, with Brexit talks finally beginning and a new face on the Bank of England’s (BoE) interest rate setting committee.

GBP/EUR has spiked back towards yesterday morning’s high, trending around €1.1435, but GBP/USD still remains around yesterday’s closing lows at US$1.2725. GBP/AUD remains lower at AU$1.6764, while GBP/NZD is soft around NZ$1.7578. GBP/CAD is also weaker than yesterday, trending around CA$1.6852.

Keep reading to see why, despite an empty UK data calendar, it could be a busy day for the pound…

What’s been happening?

Markets were reacting yesterday to the news that London School of Economics Professor Silvana Tenreyro had been named as the latest member of the Monetary Policy Committee (MPC). She will replace Kristin Forbes, whose term expires at the end of this month and who has just sat in on her last monetary policy meeting. Forbes is very hawkish, but markets are expecting Tenreyro will toe a more dovish line, at least to begin with. This would give Mark Carney more support for keeping interest rates frozen.

Brexit talks had begun, and the pound wasn’t overly moved by the evening’s press conference, as there were good and bad points to draw from. David Davis, the UK Secretary of State for Exiting the European Union had caved in to EU demands that the UK settles the terms of its divorce before beginning discussions on trade. However, while this highlights the weakness of the UK’s position, it also suggests that the government will be more co-operative and therefore the talks will be more amiable.

GBP/EUR was stuck at opening levels thanks to the weekend’s French legislative elections, which boosted the euro after President Emmanuel Macron was able to secure a comfortable majority in Parliament. He needed 289 but was able to secure 350 in combination with his allies in the Democratic Movement.

Meanwhile, after a sluggish start to the day, GBP/USD slipped into negative territory as the day’s trading drew to a close. Federal Reserve official William Dudley warned that the economy would be damaged if the Fed were to halt its cycle of raising interest rates now, indicating that more hikes could be on the way.

What's coming up?

BoE Governor Mark Carney was due to give a speech at Friday’s Mansion House event in London. The event was cancelled as a mark of respect for the victims of the tragic Grenfell Tower fire and Carney’s speech has been rescheduled for today. The pound could spend much of the day reacting to his words, with a fall likely if he continues to insist that the MPC must look past high levels of inflation when deciding how to set interest rates.

It’s a rather quiet day for the euro tomorrow, with German producer price figures and the Eurozone current account balance the only data on the main economic calendar. This could leave the pound in the driving seat of GBP/EUR exchange rates.

Federal Reserve officials Eric Rosengren and Robert Kaplan are due to speak today. There is therefore the potential for more GBP/USD movement should the consensus amongst policymakers seem to point towards the need to hike interest rates even further.

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.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.