Talking Points

- The British Pound is falling again versus the US Dollar, Euro and Yen.

- EU negotiator Michel Barnier says there has been no major progress in the Brexit discussions.

- That’s outweighing continuing expectations of tighter UK monetary policy.

What Does the Fourth Quarter Hold for the Pound, Equities, Oil and Other Key Markets? Find out here

A persistent failure to achieve a breakthrough in the Brexit talks between the EU and the UK looks to have taken over from UK monetary policy as the primary driver of the British Pound. It fell back again Thursday against all its major rivals even as expectations remain high that the Bank of England will tighten monetary conditions shortly.

Following the latest round of negotiations in Brussels, EU chief negotiator Michel Barnier said: “This week we worked in a constructive spirit and we clarified certain points without, however, making any great steps forward.” As for the so-called divorce bill that the EU wants the UK to pay, Barnier said: “We are at an impasse, which is very worrying for thousands of projects everywhere in Europe and also worrying for those who contribute.”

UK Brexit Secretary David Davis was more upbeat but still admitted that much work needs to be done and said that if a good deal is not possible the government has to be ready for the alternative.

This all means that the EU is most unlikely to agree to move on to the subject of the future relationship between the UK and the EU – as the UK wants – at the European Council meeting on Thursday and Friday next week. Instead, that will be pushed ahead to the following gathering on December 14-15, well after the upcoming meeting of the Bank of England’s monetary policy committee on November 2, when the MPC is widely expected to double the UK bank rate to 0.5%. Current market pricing suggests a probability of about 80% that the rate will rise.

Against this background, with a tightening of monetary policy largely priced in already, the Pound is looking weak all round and eased back Thursday even against a weak US Dollar.

Chart: GBP/USD Five-Minute Timeframe (October 12, 2017)

Brexit Briefing: Pound Weakens Again on Talks 'Impasse'

It was a similar story for the Pound against the Japanese Yen:

Chart: GBP/JPY Five-Minute Timeframe (October 12, 2017)

Brexit Briefing: Pound Weakens Again on Talks 'Impasse'

As for the Euro, that rose but then lost some of its gains:

Chart: EUR/GBP Five-Minute Timeframe (October 12, 2017)

Brexit Briefing: Pound Weakens Again on Talks 'Impasse'

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Markets

Brexit Briefing: Pound Weakens Again on Talks 'Impasse'

Upcoming UK/EU Event Risk (October 13, 2017, All Times GMT)

Brexit Briefing: Pound Weakens Again on Talks 'Impasse'

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

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