The Prime Minister will travel to Brussels on Thursday for the next round of talks. Sterling has already suffered off the back of speculation that the EU won’t make any further concessions and there’s talk of Europe now bracing for a no-deal outcome, adding further downside pressure to the Pound.
The idea that the struggling Eurozone economy could do without the impact of a no-deal Brexit doesn’t seem to be much of a concern to politicians. There’s speculation that with seven weeks to run to the Brexit deadline, now is still too early for European politicians to buckle. Failure for Theresa May to return with a fresh offer will likely leave both the Pound and Euro under pressure.
UK Services PMI
Data highlighting the health of the UK’s dominant services sector was released yesterday with the January Purchasing Managers Index (PMI) figure. A reading of 51.0 had been expected, but the print of 50.1 illustrates how economic growth is being stifled by Brexit uncertainty. There is a correlation between PMI readings and Gross Domestic Product (GDP) growth, and although there are suggestions that this can be overstated, the news added to the downside pressure on the Pound.
State of the Union
Donald Trump’s State of the Union speech was delayed owing to the US Government shutdown but finally took place last night. There was some concern that the address could contain surprise announcements regarding defence, trade or home affairs news, but there was little that gave investors much cause for concern. Although cached with a conciliatory political tone, the President remained committed to getting the Mexican border wall built. The Dollar held fast, but some core Trump supporters were said to be less than impressed.
The Pound fell to more than a two-week low against the Dollar overnight, posting its fourth successive day of losses in the process. The disappointing UK PMI data started the slide, with Brexit concerns exaggerating the fall.
Modest declines were recorded for the Euro against the US Dollar during yesterday’s session. While a no-deal Brexit may prove problematic for the UK economy, the Eurozone is set to feel the effects too.
The Pound tested two-week lows against the Euro during overnight trade, although recognition of the fact a disorderly Brexit will be bad for the Eurozone is helping limit downside pressure.