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GBP Under Pressure as Brexit Tensions Weigh

GBP Under Pressure as Brexit Tensions Weigh

Nick Cawley, Strategist

Talking Points

- UK Brexit negotiators go through the EU’s divorce bill line by line according to sources.

- Bank of England Hawk Saunders explains his recent rate hike stance.

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Sterling came under renewed downside pressure after media outlets reported that talks between the EU and the UK on the size of the exit bill hit a roadblock, increasing fears that the start of the all-important trade talks will be pushed back further.

According toThe Guardian newspaper, UK Brexit negotiators picked apart the European Union’s divorce bill over a three hour presentation and told the EU that their sums did not add up. According to the article, the UK negotiating team made it clear that they found the EU’s position paper on the exit bill ‘unsatisfactory’ adding that ‘nobody would sign a cheque on the basis of the commission’s paper.’

The UK negotiating team also made it clear that they strongly disagreed with recent comments from the EU’s chief negotiator Michel Barnier that the UK were not ‘serious’ about exit bill discussions, opening the way for a potentially lively joint UK/EU press conference later Thursday.

The latest fall in GBP came in the wake of the Bank of England’s effective exchange rate index slumping to a nine-month low on Wednesday.

Chart: GBPUSD Thirty Minute Timeframe (August 29 - 31, 2017)

GBP Under Pressure as Brexit Tensions Weigh

Chart by IG

Sterling also failed to get an uplift from a speech from Bank of England external MPC member Michael Saunders explaining why he voted for a 0.25% interest rate hike at the last meeting. Saunders said that spare capacity in the economy had been absorbed faster than expected while inflation will remain above target for longer.

The prospective trade-off is beyond my limits of tolerance, with the likelihood of an early elimination of slack and an extended period of above-target inflation. We do not need to be putting the brakes on so much that the economy weakens sharply. But, our foot no longer needs to be quite so firmly on the accelerator in my view. A modest rise in rates would help ensure a sustainable return of inflation to target over time.”

BoE’s Saunders speech in full.

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--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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