Market News & Insights
30 March 2017

Into The Abyss for GBP

“A man may die, nations may rise and fall, but an idea lives on” – JFK could well have been talking about the EU had it not come about long after his death but that quote feels subtly apt for our current situation. What happens to the UK from here is anyone’s guess at this stage. Anyone who says otherwise is misleading as we simply do not have enough information to hand and negotiations will take several years (very few expect this to be sorted in two years). How the UK cope with this, as well as internal issues with Scotland remains to be seen but the UK may well fall and rise within that timeframe.

The idea of the EU remains, however is that idea now tarnished? Has the UK now signed the death warrant for all those EU idealists? For now the idea lives on and it is maintaining those EU ideals that could create issues for the UK should the EU look to make an example of the UK then this will not be a pretty divorce. We are no doubt in for several years of intense and likely fractious negotiations.

The actual delivery of Article 50 to Brussels came and went with little fan fair, GBP rallied slightly as news broke it had been received, spurred higher by comments from PM May to parliament. Sterling then fell back to where it started the day as EU President Donald Tusk addressed the media stating “(there is) no reason to pretend this is a happy day”.

GBPUSD rallied from a base around 1.2400 (lows below were 1.2378) however, topside was limited to 1.2478 and that now marks the short term range. 1.2362 likely offers decent support below that, while 1.2600/2700 area attracts for rallies. EURGBP finds resistance towards .8733, while .8600 area offers support. Sterling will find itself exposed and vulnerable to related headlines, while inflations rapid accent puts pressure on the BOE. We are far from seeing green shoots for GBP just yet!

It was not plane sailing for the Euro either, a leaked report from the ECB suggesting they felt the market misinterpreted their last meeting and the change in statement, they do not want the market to get the idea they are looking at tightening policy and they will likely be sure to make this clearer in the next meeting. The suggestion that we will not be seeing a “taper” any time soon, sent Euro rates lower, while in the US several FED members, with hawkish commentary, saw US rate rise.

The widening spread in yields between the two was worth a 1.6% decline for EURUSD since the beginning of the week. 1.2700 offers some light support but the real area of support continues to be 1.2500/30 area and for me, failure to the top above 1.0800/0900, favours a fall back towards that major support. US GDP highlight the afternoon session, but its Q4 figures and we’d expect very little to change in estimates at this point, several Fed speakers once again will be towing the Fed line this afternoon and for now USD holds firm.