Pound fails to find support from Brexit delay

​​​​​​Today's news headlines:

  • 'Six-month Brexit delay sends Sterling into the doldrums’. The decision to allow a further extension to Brexit has caused implied volatility for the Pound plunge, with speculation mounting about whether the UK will now manage to complete the divorce process. (Reuters)
  • 'Europe is running out of economic policy options to boost growth’. Since European Commission debt thresholds limit the scope for national governments to employ fiscal policy to bolster growth, the ECB’s patient stance over monetary policy and the threat of a trade war with the US are causing a great deal of uncertainty for the EU. (CNBC)

Brexit

The six-month extension to Brexit which was agreed in the early hours of Thursday morning has failed to deliver any upside for the Pound.  A confirmatory referendum or a customs union are both being discussed with mounting frequency, and it seems increasingly likely that a very soft version of Brexit will be delivered. Such an outcome ought to be more encouraging for Sterling, but the past several months have demonstrated how a lack of pressure can result in months—or even years—of no progress. It seems the Pound and the underlying political situation are lacking direction.

European expansion

There’s a degree of disappointment that the European Central Bank (ECB) didn’t take a more proactive view in this week’s monetary policy meeting. With several Eurozone member states now in a position where any fiscal incentives, such as tax breaks, would risk breaching European Commission deficit rules, steering the currency bloc away from recession seemingly rests with ECB. The next central bank monetary policy statement isn’t due until June, so economic data—which has recently been uninspiring—will be driving Euro valuation in the interim.

GBP/USD

The Pound is struggling to find much upside against the US Dollar, despite the Brexit extension. In the near-term, the Pound is likely to be trading on economic data with Brexit wrangling moving temporarily into the background.

EUR/USD

The Euro found some support overnight against the US Dollar, based on cross-border transaction speculation. Further appreciation will depend on economic data which is limited for this week.

GBP/EUR

The Pound has been standing stock still for the past several days. A jump on EUR has moved the cross overnight, but further downside seems limited by continued Euro-buying conviction. The unflattering economic picture in the EU suggests additional appetite will be harder to come by.