Market News & Insights
25 September 2017

GBP Holds Firm Despite Downgrade

The biggest event of Friday’s session was the speech from UK PM May, which was meant to provide some clarity on the UK government’s position on Brexit negotiations. Sadly this did not have the impact May wanted and what seemed clear to most was that there still appears to be little in the way of a firm plan in place. May was seen by many hard line brexiteers to have sold those looking to leave the union short, with a token payment offering and towing back on some of the more hard line positions, however still seeming to state that no deal is better than a bad deal for the UK. For most the speech was waste of time, another optimistic wish list from the UK government with nothing concrete in place, time will tell but each passing week pressure mounts on May’s leadership.

Moody’s also downgraded the UK’s rating to Aa2 with the outlook then changed to stable as it see’s rising fiscal pressures as a result of diminishing economic strength while they also question the government’s ability to deliver a secure replacement of free trade with the region to mitigate potential fallout.

GBP found itself facing some selling vs the USD, it dropped some .7% following May’s talk on Friday and another .6% later on Friday evening following the downgrades. However despite some selling sterling has not seen an all-out shift in sentiment, with GBPUSD still looking at a range between support at 1.3450/75 area, and topside resistance above 1.3600. GBP is still holding firm against the Euro however, still trying to break below .8775 lows to start another downward move, while rallies higher running into sellers ahead of .8890.

The German election over the weekend was not deemed to be a major risk event for the euro, with Merkel expected to gain an easy victory. The Chancellor will maintain leadership for another term following the majority win however the one thing that was surprise was a rise in the popularity of the far right AFD party, who enter parliament for the first time and could create some issues for Merkel’s government as a coalition will be required. The euro opened the week slightly weaker on the back of this, as well as some cautious sentiment from ECB headlines over the weekend. EURUSD once again continues to find sellers on any rally above 1.2000 area, rising support at 1.1900 holds the pair for now and a break below here challenges last week’s lows towards 1.1862. A break sub 1.1850 will confirm a correction lower for me, targeting move towards 1.1400 area.