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Sterling touches two-year low as investors hedge rise in Brexit risk

Sterling fell below $1.24 on Wednesday, levels not plumbed for more than two years, as investors continued to price the growing risk of Britain’s crashing out of the European Union without a transition agreement in place.

With economic data also showing the UK economy struggling, putting more pressure on the Bank of England to ease monetary policy, investors are taking to currency derivatives and futures markets to bet on more weakness.

After falling to as low as $1.2382, the pound later rebounded slightly on Wednesday to trade at $1.2426 GBP=D3, up 0.2% on the day, but the currency remains under pressure.

“Clearly the issues facing the UK currently have not been faced in the last decade or so, even during the global financial crisis, and the potential for the pound to hit the 2016 lows is there,” said Neil Mellor, a senior currency strategist at BNY Mellon in London.

In October 2016, the British currency dropped briefly below $1.15, its lowest in more than three decades, during a flash crash in the currency markets in early Asian trading hours.

It has since recovered, strengthening to nearly $1.34 earlier this year. But fears the next British Prime Minister will drag Britain out of the EU without a deal have prompted traders to dump the pound in recent days.

Arch-Brexiteer Boris Johnson is the favourite to become Conservative Party leader next week and hence the next prime minister. Johnson and his opponent for the leadership, Jeremy Hunt, have been vying with each other to show party members their willingness to force a “hard” Brexit.

(For a graphic on ‘One direction for sterling’, click tmsnrt.rs/2NZstIC)

The pound has lost 1% against the euro this month and more than 2% against the dollar, putting it on track for its biggest monthly drop since June 2018.

It is this year’s worst-performing G10 currency against the dollar. HSBC strategists said a “no-deal” outcome would push the pound all the way to $1.10.

(For a graphic on ‘Sterling worst performing G10 currency in 2019’, click tmsnrt.rs/32t7xgc)

Against the euro, sterling weakened to as low as 90.51 pence EURGBP=D3 on Wednesday, a new six-month low, before recovering to 90.285 by 1445 GMT.

“UNDERPRICED”
Traders’ fears seem justified, with Britain’s Brexit minister, Stephen Barclay, telling lawmakers on Wednesday no-deal risk was “underpriced”.

The hard Brexit risk was boosted this week when both Johnson and Hunt said they would not accept the so-called Northern Irish backstop in Theresa May’s proposed Brexit agreement.

The backstop is intended to prevent the return of a hard border between EU member Ireland and British province Northern Ireland. If implemented, the UK would follow many EU rules until arrangements are made to avert a hard border.

That has sent investors scurrying to price greater pound volatility, with implied volatility gauges jumping in recent days — the six-month contract, encompassing the Oct. 31 Brexit deadline, has risen above 9 vols for the first time since early-April, up from 8.3 vols two weeks ago GBP6MO=FN.

“These are all risks we’ve known about for months, so it’s not new, but there is the need for sterling vol to actually price these risks, which it simply was not doing much of before this week,” Nomura strategists told clients.

Markets were shrugging off economic data, with “hedging flows more of a focus”, they said.

Net short sterling positions are at $5.69 billion, having grown for four weeks straight, according to the Commodity Futures Trading Commission.

(For a graphic on ‘GBP volatility curve’, click tmsnrt.rs/32sNMW4)

Reporting by Saikat Chatterjee and Sujata Rao; Additional reporting by Tommy Wilkes; Editing by Larry King and Peter Graff

Source: UK Reuters

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Will the Bank of England raise or cut interest rates after UK inflation data?

UK inflation has grown at an annual rate of two per cent for the second month in a row, official statistics confirmed today.

The consumer price index (CPI) figure is bang on the Bank of England’s target. It thinks two per cent inflation is ideal for ensuring smooth growth in the economy.

But what does this mean for the Bank’s main interest rate, which currently stands at 0.75 per cent?

If inflation drops below two per cent, the BoE should theoretically cut rates to encourage borrowing and spending, and vice versa.

However, Brexit uncertainty has made the Bank reluctant to take any action for fear of destabilising the economy.

“There is little pressure for the [Bank] to adjust interest rates in either direction,” said Andrew Wishart, UK economist at Capital Economics, in response to today’s figures.

“There was still little sign of rising underlying inflationary pressures despite the continued strength of pay growth in May,” he said. Official figures yesterday showed real pay grew by 1.7 per cent in the year to May.

“A fall in energy price inflation and a reduction in Ofgem’s energy price cap in October should take 0.3 percentage points off inflation over the second half of the year,” Wishart said.

Brexit fog
Investec economist Victoria Clarke said: “For the Bank of England the close-to-target inflation readings helps the institution to maintain its wait and see position amidst continuing questions over Brexit’s likely course”.

“We maintain our view that the BoE is happy sitting tight throughout this year and through much of next year too,” she said.

The way Britain leaves the European Union will be at the forefront of the Bank’s mind. It has hinted it could slash rates to ease the economic turbulence of a no-deal exit.

“On-target inflation gives the Bank of England plenty of room to cut interest rates in the event of sharp slowdown,” said Ian Stewart, chief economist at Deloitte. “The likelihood of the UK joining the global move to easier monetary policy is rising.”

But George Buckley, Nomura’s chief UK and euro area economist, said: “The response of inflation to a hard Brexit may be for a sizeable rise” due to higher tariffs, restrictions on incoming goods from Europe, and a lower pound.

Such a rise would ordinarily trigger a rate cut, but the Bank will likely wait and see exactly what happens to the economy immediately after a no-deal exit, should it occur.

Certain elements of today’s inflation figures, such as lower producer input and output prices, are “helpful for the Bank,” said Howard Archer, chief economic adviser to the EY ITEM Club.

The data gives “decent scope” for the BoE “to adopt a flexible approach on interest rates should the economy continue its current struggles amid Brexit uncertainties,” he said.

By Harry Robertson

Source: City AM

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Sterling slides back to $1.25 as economy and Brexit worries grow

The British pound fell back towards six-month lows against the dollar and the euro on Monday, with traders still nervous about a loss of momentum in the UK economy, the prospect of an interest rate cut and a new prime minister.

At the end of last week, sterling ended a nine-week losing streak against the euro and inched up from a low of $1.2439 hit at the end of June.

However, analysts are largely bearish on the pound after a run of poor economic data and signals from the Bank of England that its next move may be to cut interest rates rather than raise them, as it had previously flagged.

The pound fell 0.5% to $1.2510, while against the euro it declined 0.5% to around 90 pence.

Sterling had hit a six-month low of 90.10 pence per euro last week.

On Tuesday, employment and wage growth data for the month of May will show how the British labour market is holding up. Many economists expect the UK economy will have contracted in the second quarter.

Investors are also waiting for the outcome of the Conservative party leadership contest to replace Prime Minister Theresa May.

Eurosceptic Boris Johnson is the favourite to win against Jeremy Hunt in a vote by Conservative party members. The winner will be crowned leader – and prime minister – by the end of July.

Nomura FX strategist Jordan Rochester said the bank’s analysts had concluded that sterling was “in the value zone for now, vols are cheap and a lot of bad news is priced in, but that’s just for the next six weeks or so”.

“In September, hard Brexit risks will once again be priced in by markets,” he wrote in a research note.

Britain is scheduled to leave the European Union on Oct. 31.

David Madden, analyst at CMC Markets, noted that on a technical basis, sterling/dollar “has been driving lower since mid-March, and if the bearish move continues it might encounter support at $1.2365 region.”

Reporting by Tommy Wilkes; Editing by Jon Boyle and Kevin Liffey

Source: UK Reuters

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UK lenders can withstand no-deal Brexit and global trade war, Bank says

The Bank of England has said UK lenders could withstand the worst case no-deal Brexit and a full-scale global trade war but warned “material risks of economic disruption” remain from a cliff-edge EU withdrawal.

In the latest report from the Financial Policy Committee (FPC), the Bank said it had assessed lenders against a doomsday no-deal Brexit scenario together with a global slowdown sparked by the US-China trade war and found they would still be able to continue lending to UK households and businesses.

But Governor Mark Carney cautioned that Britain would still suffer a “major economic shock” if it crashed out of the EU, adding that the threat of a no-deal had increased in recent months.

He said while the Government had made progress in preparing for a no-deal, it still had work to do, while there was also significant action needed on the part of EU authorities.

But Mr Carney stressed the UK financial system was “ready for Brexit whatever form it takes”.

He added: “Brexit developments are taking place against a backdrop of increasing risk to the global economic outlook.”

He said: “Even if a protectionist-driven global slowdown were to spill over to the UK at the same time as a worst-case disorderly Brexit, the FPC judges the core UK banking system would be strong enough to absorb, rather than amplify, the resulting economic shocks.”

The FPC cautioned that EU authorities still needed to take further action to help protect against some risks that remain, particularly ensuring banking services between UK and EU banks can remain in place after EU withdrawal.

It said half of all clients of major UK banks had not completed the necessary paperwork for EU derivative trades.

The lack of action by the EU is likely to largely affect European households and businesses, but could be expected to spill back to the UK.

The Brexit threat comes at a time of mounting trade tensions between the US and China, which the FPC said have “resulted in declining business confidence and pose material downside risks to global growth output”.

UK banks are around 60% exposed to the international economy.

In its assessment of UK bank strength, the Bank said it assumed the worst case no-deal Brexit outcome, as well as a trade war outcome that saw the US and China ramp up their tariffs by 25%, as well as a sharp contraction in global growth.

The FPC said it was satisfied that its most recent stress test at the end of 2018 was tougher even than this outcome and that banks would withstand the double-whammy hit.

The report also revealed the Bank is launching a review of funds like Neil Woodford’s suspended equity income fund, which has left hundreds of thousands of investors locked out of their cash.

The Bank will look at potentially imposing restrictions that could ban funds invested in illiquid assets from offering short-term notice periods.

At a press conference after the FPC report, Mr Carney declined to confirm whether he plans to apply for the post of head of the International Monetary Fund to succeed Christine Lagarde.

Mr Carney said: “There will come a time when that (recruitment) process launches and it’s probably the right time to answer that question.”

The Bank also confirmed in its FPC report that it plans to test UK lenders for the first time against climate change risks in its annual health check of the sector from 2021.

Source: Irvine Times

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Bank of England could cut interest rates to near zero in no-deal Brexit

Interest rates could be cut to almost zero if Britain leaves the European Union without a deal, a top official at the Bank of England said today.

Gertjan Vlieghe, a member of the Bank’s rate-setting monetary policy committee (MPC), told an audience in London today that Threadneedle Street might have to slash rates to nearly zero in the event of a no-deal Brexit.

The comments mark one of the strongest indications yet given from an MPC member of the potential direction the BoE could take if Britain and the EU failed to reach an agreement by the deadline of 31 October.

Boris Johnson, the bookies’ favourite to succeed Theresa May as the next Prime Minister, has pledged to take Britain out of the EU with or without a deal by the end of October, raising expectations of a potential no-deal exit.

In a speech given at Thomson Reuters, Vlieghe said: “On balance I think it is more likely that I would move to cut Bank Rate towards the effective lower bound of close to zero per cent in the event of a no-deal scenario.”

Sterling remained roughly flat at 1.252 against the dollar.

Vlieghe, who was once a bond strategist at Deutsche Bank, said it was “highly uncertain when I would want to reverse these interest rate cuts”, as it would depend on the rate of recovery from a potential no-deal shock to the markets.

In June the rate-setting committee at the Bank voted unanimously to hold interest rates.

It had raised rates to 0.75 per cent last August from a low of 0.25 per cent.

Yesterday governor Mark Carney refused to be drawn on whether he has his eyes set on the top job at the International Monetary Fund (IMF) after he leaves the Bank in January.

Carney said there were “a few orderly transitions” he had to look after at Threadneedle Street before he focused on anything else.

By Sebastian McCarthy

Source: City AM

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Sterling slides towards two-year lows as outlook darkens

The British pound fell towards its lowest levels in more than two years on Tuesday against the backdrop of a worsening economic outlook and rising fears about a no-deal Brexit under a new Prime Minister.

With a key $1.25 level against the dollar giving way in early Asian trade, traders quickly pushed the British currency down half a percent against the dollar to a level not seen since April 2017, barring a flash crash in early January.

The pound also weakened against the euro to a six-month low at 89.95 pence EURGBP=D3 and is on track for a tenth consecutive week of losses against the single currency.

“All the fundamental factors point to a weaker pound and the downward momentum is still intact,” said Lee Hardman, a currency strategist at MUFG in London.

In the latest sign of economic weakness, sales at British retailers rose at their slowest average pace on record over the past year, a survey from the British Retail Consortium showed on Tuesday.

Concerns about the worsening economic outlook in Britain – some analysts expect the economy contracted in the second quarter – encouraged Bank of England Governor Mark Carney to signal last week that the central bank may strike a more dovish tone at its August policy meeting.

The pound was trading 0.5% down versus the dollar at $1.2455 and within striking distance of an April 2017 low below $1.2409. It very briefly hit that low in January this year in chaotic trading during a currency market flash crash.

(For a graphic on ‘Sterling approaching Jan 2019 low of $1.2409’, click here tmsnrt.rs/2YCVA5j)

VOLATILE OUTLOOK
Markets are now pricing in a BoE rate cut over the next 12 months, as central banks around the world adopt an easing bias in the face of economic uncertainty and trade tensions between the United States and China.

Sterling has fallen for several days, its losses compounded by a dollar rallying after analysts scaled back expectations the Federal Reserve would cut interest rates by 50 basis points later this month.

RBC Capital Markets strategist Adam Cole noted that betting markets were now pricing in a 95% chance of eurosceptic Boris Johnson, who some investors fear will push Britain towards a no-deal Brexit, becoming the next leader of the Conservative party and Prime Minister.

“While a significant measure of Brexit risks have already been priced, the pound may still have more of its downside exposed, should the prospect of a no-deal Brexit ramp up meaningfully over the coming months,” said Han Tan, Market Analyst at FXTM.

Those risks are being priced into the currency derivative markets with the spread between three and six-month implied volatility in the pound widening to its highest levels in two months.

Latest headlines on the Brexit front have also pressured the pound lower.

Ireland will step up its preparations for a disorderly Brexit this week given the chances of Britain leaving the European Union without a deal have never been higher, foreign minister Simon Coveney said.

A spat between Britain and the United States following the leak to a British newspaper on Sunday of memos from the British ambassador to Washington also raised concerns.

Option markets also point to more weakness in the pound with only some relatively tiny options amounting to around $400 million struck around the $1.24 levels.

Economic growth data for May, due on Wednesday, will help analysts decide whether the British economy is likely to have shrunk in the second quarter after a series of disappointing business surveys.

Economists polled by Reuters expect the British economy grew 0.3% in May month-on-month, an improvement on the -0.4% in April.

Reporting by Tommy Wilkes and Saikat Chatterjee; editing by Ed Osmond

Source: UK Reuters

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No rush for Bank of England to raise rates after a Brexit deal

The Bank of England probably has more time than it previously thought before it will need to raise interest rates, assuming Britain can leave the European Union with a transition deal, BoE interest-rate setter Silvana Tenreyro said on Wednesday.

The pound would probably rise after a Brexit deal, Tenreyro said. Combined with the ongoing slowdown in the world economy this would probably offset the inflation pressure building in Britain’s labour market and allow the BoE to keep rates on hold at their current level of 0.75% for a while.

“Coupled with signs of a weaker global outlook, recent developments likely lengthen the period until there is a sufficient pick-up in inflationary pressures for me to vote to raise Bank Rate,” Tenreyro said in a speech. “I do not currently anticipate such a pick-up in the next few months.”

Tenreyro said a “small amount of policy tightening” would be needed over the next three years in the event of a Brexit deal.

The BoE has long advised investors that rates are likely to go up in a gradual and limited way, as long as a Brexit deal is done.

In the event that Britain leaves the EU without a deal, it was more likely than not that the BoE would need to ease monetary policy to soften the shock, she said, repeating comments she made in March.

But this was “by no means certain,” she added.

The fall in yields on British debt reflected worries about the world economy and not just Brexit, she said.

Many investors are betting that the BoE’s next rate move will be a cut, not an increase, given their fear that a no-deal Brexit looks more likely.

Both contenders to replace Theresa May as the next prime minister have said they are prepared to take the country out of the EU without a deal if necessary.

BoE Governor Mark Carney said last week that the risks of a no-deal Brexit and an escalation of global trade tensions were rising, adding to bets in markets on a BoE rate cut.

Source: Investing

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Pound slides on UK growth concerns, BoE rate cut bets

There was no real catalyst for this morning’s sell-off, with investors instead dumping the Pound following a dire week of UK economic data and concerns that the Bank of England could join the Federal Reserve in cutting interest rates in the second half of the year. Yesterday’s soft services index ensured that this week’s PMI prints all came in much worse-than-expected, while suggesting that the UK economy barely grew in the second quarter of the year.

Even prior to this week, investors had already begun ramping up expectations for Bank of England interest rate cuts, particularly given that the Brexit impasse has shown no signs of ending any time soon. These expectations have heightened in the past few days following some dovish comments from BoE Governor Mark Carney earlier in the week.

Financial markets are now placing around a 50% chance of a cut before the end of the year. While we think that this is a slight overreaction, the current backdrop of growing calls for BoE rate cuts and increasing bets in favour of a ‘no deal’ Brexit come the end of October are far from providing a conducive environment for Sterling strength.

Euro heads for worst week in 3 ahead of payrolls report

Elsewhere, the Euro edged modestly lower again this morning, putting it on course for its worse weekly drop in three weeks ahead of this afternoon’s US labour report.

The common currency has been firmly on the back foot in the past couple of weeks as European yields extend their move downwards. The German 10-year government bond yield has dropped particularly sharply since Mario Draghi’s dovish speech in mid-June and is now at an all-time low of -0.4%. This far from provides an attractive proposition for foreign investors.

As we mentioned yesterday, this afternoon’s payrolls report presents itself as a particularly significant event risk for the currency market. Last month’s payrolls report was uncharacteristically poor, so the bar for a rebound this month is pretty low. That being said, even a pretty big upside surprise would, in our view, be insufficient to prevent the Fed cutting rates later this may, although may be enough to quieten calls for an aggressive pace of policy easing during the rest of 2019.

Today’s payrolls report will be released at 13:30 UK time.

Written by Matthew Ryan

Source: Ebury

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Pound Sterling Dented by Carney Warnings

The British Pound is under pressure in mid-week trade with foreign exchange markets digesting a speech by Bank of England Governor Mark Carney that prompted markets to rapidly raise expectations for an interest rate cut over coming months.

Carney told an audience in Bournemouth late on Tuesday that the “stance of monetary policy is tighter than intended” owing to a disconnect between market expectations of interest rates and the Bank of England’s guidance on where they believe interest rate expectations should actually lie.

Carney’s added that downside risks to the economy have increased recently owing to global trade tensions and markets interpreted the comments as reason to increase expectations for an interest rate cut in coming months.

Currencies tend to fall when their central bank communicates the prospect of future interest rate cuts.

Carney said the global trade tensions have caused a “sea change” in investors’ outlook for the world economy that “suggests a shock to U.S. and Chinese business confidence and investment analogous to what has happened in the UK”.

“The latest actions raise the possibility that trade tensions could be far more pervasive, persistent and damaging than previously expected. The rationales for action are broadening,” he said in the speech.

The key phrase here being “the rationales for action are broadening”: markets quickly ramped up expectations for an interest rate cut at the bank on this comment. Money markets now assign a 57% probability of a 0.25% interest rate cut by the Bank in December, up from 41% ahead of Carney’s speech.

This repricing in expectations sent Sterling lower.

The intervention by the Governor means what had already been a poor day for Sterling just got worse leaving the currency trading near multi-week lows against the Dollar and Euro at the mid-week period.

“Things have gone from bad to worse for the Pound. After being knocked by a poor construction PMI earlier in the day, sterling slumped to hit a new session low moments ago in reaction to a speech by Bank of England Governor Mark Carney,” says Fawad Razaqzada, a Market Analyst with Forex.com. “Carney said the BoE expects economic growth in the second half of the year to be considerably weaker and that it will re-assess Brexit and trade tension in August.”

The speech appears to be a clear move by the Bank of England Governor to massage market expectations towards expecting a more sombre assessment at their next major policy update in August with the view to potentially laying the path to another interest rate cut.

However, we are told by one analyst this particular sell-off in Sterling might not be warranted as some interpreted the Governor’s speech as being more balanced than the market have judged.

“Carney did hint 2-way risks to Bank policy rate (explicitly says need for rate hikes if smooth Brexit). Sure nobody can see smooth Brexit / easing global trade tensions right now but no need to chase UK rates even lower (50% odds of 2019 cut priced). GBP sell-off overreaction,” says Viraj Patel, an analyst with Arkera.

Carney said the Bank of England was working on the assumption that both candidates in the leadership race to replace Prime Minister Theresa May would achieve their stated aim of reaching a deal with the EU.

If that happened, the outlook for Britain’s economy could improve quickly, which is why the Bank has not changed its main message about the outlook for rates: that gradual interest rate rises would be needed in the future.

“In the UK, the combination of the relatively strong initial conditions – including a tight labour market and inflation at target – and the prospect of greater clarity emerging in the near term regarding the UK and EU’s future relationship argues for a focus on the medium-term inflation dynamics,” Carney said.

The British Pound had already been under pressure against the Euro, U.S. Dollar and other major currencies earlier on Tuesday, July 02 as foreign exchange markets continue to express caution over the prospects of a disruptive Brexit and heightened prospects for a General Election before 2019 is out.

Adding downward pressure was a rude surprise in the form of Construction PMI for June that showed the sector has entered its deepest slowdown in ten years: the reading of 43.1 is sharply down on the previous month’s reading of 48.6, and well below analyst expectations for a reading of 49.3 to be delivered.

The data only adds to market concerns that the UK economy is stalling at a critical period for the country’s politic future. The economy has long been a bright spot for the Pound, underpinning it amidst chronic political uncertainties. We wonder what might happen to the currency now that the economy is looking less reliable.

We continue to maintain a view that currency markets are primarily focussed on the Brexit strategies of the two candidates to replace Prime Minister Theresa May in late July, and we hear today that front-runner Boris Johnson will make an offer to the European Union over post-Brexit free trade, but if it rejects that gambit then Britain will leave the bloc without a deal on October 31.

“With Boris, what he’s actually said clearly is: ‘We’re not going to go back and renegotiate’,” Iain Duncan Smith, Johnson’s campaign chairman, told Sky News.

“What we’re going to do is we will put a different offer down and say to them: ‘Look – we want to get to free trade. Now we can either start talking about that now if you are serious and you want to have a process that means we don’t end up … with tariffs etcetera after the 31st – if that’s what you want, the EU, then we are prepared to talk,” Duncan Smith said.

“But if all you are interested in doing is saying: ‘All you can have is this deal’, then the answer is: we will be prepared to leave on the 31st,” says Duncan Smith.

The developments will only further embed growing expectations for a ‘no deal’ into the value of Sterling we believe.

“A hard Brexit or the prospect of a new election is likely to weaken the GBP further, while a controlled withdrawal or a second referendum is likely to reduce the risk premium on the GBP and strengthen it,” says Dr Richard Falkenhäll, Senior Currency Strategist with SEB.

Merkel Will Talk: Hunt
Jeremy Hunt, who is fighting Johnson for the top job, has meanwhile said German Chancellor Angela Merkel will be willing to look at proposals for a revised Brexit deal.

“When you talk to those people … they also say that if a new prime minister comes forward with new proposals that are sensible of course they will look at the package,” Hunt told Sky News. “I have had a conversation with Angela Merkel. (She said) of course we will look at any proposals made by the new UK prime minister, because she wants to solve this problem.”

Hunt’s view on a potential willingness by the EU to look at the proposals of the next Prime Minister does offer some hope that a deal, of sorts can be done.

Of course EU leaders and officials have lined up over recent weeks to say there is only one deal on the table, and that is the current Withdrawal Agreement, and that it cannot be reopened for fresh negotiations.

We do however wonder if apparent EU intransigence on the matter will be permanent when faced with a Prime Minister who decidedly commits to a ‘no deal’ Brexit.

Hunt, who has long been seen as the ‘softer’ of the two candidates on Brexit is meanwhile appearing to harden his stance, saying that unless the EU budge by the end of September he will commit fully to a ‘no deal’ Brexit.

Johnson has long been of the opinion that a ‘no deal’ should be pursued if no improved deal with the EU can be found and has this week sought to downplay the negative impact of a potential ‘no deal’ Brexit.

We remain of the view that foreign exchange markets will continue to place great emphasis on Johnson’s intentions concerning Brexit and the strategy he intends to pursue.

“His “do or die” pledge to leave the EU on the 31st October has heightened ‘No Deal’ Brexit fears. We continue to believe a General Election or second referendum will be required to break the deadlock if parliament votes to prevent a ‘No Deal’ Brexit. We believe there is scope for further Pound weakness heading into the autumn,” says Derek Halpenny, Head of FX Research at MUFG in London.

Johnson said on Monday the impact of leaving the European Union without a deal would be “very, very small”, and added that he had a very carefully costed programme of spending plans.

“There is as you know about 26 billion quids worth of headroom. The money is there,” Johnson told reporters when asked about his spending proposals.

“We also think there is room to make some sensible tax cuts as well and we will be doing that too.”

Analyst sees Further Declines for Sterling against the Euro Ahead
Foreign exchange analyst Trevor Charsley with AFEX – a currency brokerage based in London – says he believes the Pound will continue to “staircase” lower against the Euro for the foreseeable future.

“For now at least the market here can continue to “stair-case” directly lower first/next instead and despite initial buying interest at 1.1100 a window of opportunity thus remains open to examine the psychological 1.1000 in coming sessions, Charsley says in a weekly briefing note to clients.

The Pound-to-Euro exchange rate has been under pressure since early June, when it was quoted as high as 1.17, and is now looking to be stuck in a range below 1.12 with a negative bias being in place.

Pound Shifting Negative Against the Dollar
The Pound has been tracking sideways against the U.S. Dollar since late May: bordered to the top by the 1.2750 area and to the bottom by 1.25-1.2550.

It appears that we are witnessing another impulse lower in the range.

“A closing break below 1.2650 has put a negative bias back into the recent phase of consolidation again,” says Richard Perry, a market analyst with Hantec Markets. “Momentum indicators are drifting lower, with the RSI into the low 40s, Stochastics lower and MACD lines plateauing, but these are more of a negative bias rather than precipitous bearishness.”

“Losing 1.2650 effectively opens the recent low at 1.2505,” adds Perry.

Written by Gary Howes

Source: Pound Sterling Live

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How have UK interest rates changed over time?

UK interest rates: key figures

Date set Rate
Current bas rate 2 May 2019 0.75%
Highest base rate 15 November 1979 17%
Lowest base rate 4 August 2016 0.25%

Who sets UK interest rates?

The UK interest rates are set by Bank of England’s (BoE) monetary policy committee (MPC) by means of a vote. Mark Carney is the governor of the BoE and chairman of the MPC. The meeting happens on the first Thursday of each month, and the announcement is made two weeks after the meeting.

Why is the Bank of England base rate important?

The BoE base rate is important because it influences all other interest rates, including bonds, loans and savings rates. In other words, it affects the interest that you pay to commercial banks from which you’re borrowing money and how much interest you’re earning if you have savings. People often borrow money to pay for property, vehicles, school fees, and more. Because it affects how people spend, it also influences how much things cost. This means that the interest rate is also an important factor in determining inflation. The aim is to keep inflation at around 2%.

In addition, the base rate is important to traders – especially forex traders – because it gives them an indication of currency valuations. If the rate is higher than expected, it often has a positive effect on GBP and if it’s lower than expected, it has a negative impact.

UK interest rate timeline: key events

There have been many key events between 1979 and today that have affected the UK interest rate. They include:

1979: Interest rates rise to a staggering 17% when the Margaret Thatcher administration is appointed. Its aim is to lower inflation, but it also has a severe effect on British manufacturing exports and housing prices.

1992: The UK withdraws from the European Exchange Rate Mechanism and interest rates rise from 10% to 12%. Though the government wanted to raise it even more to increase investors’ interest in the pound, this plan never took off, and the rate was reduced back to 10% in September of the same year.

1997: The Tony Blair administration is elected, and interest rate decisions are handed over to the independent Bank of England. In this year, the interest rate increases to its highest in six years.

2003: Interest rates fall below 4% and worry starts to creep in over inflation. The base rate is effectively increased over the next few years to combat high inflation.

2008 to 2016: The global financial crisis causes the UK interest rate to drop to a low of 0.25%.

2017 to 2019: The MPC decides to increase the base rate to 0.5% and 0.75% soon thereafter. More increases were expected, but Brexit has reduced the chance of this happening any time soon.

Bank of England base rate timeline: 1979 to 2019

Base rate at year end Base rate at year end
1979 17% 1999 5.5%
1980 14% 2000 6%
1981 14.38% 2001 4%
1982 10% 2002 4%
1983 9.063% 2003 3.75%
1984 9.5% 2004 4.75%
1985 11.38% 2005 4.5%
1986 10.88% 2006 5%
1987 8.38% 2007 5.5%
1988 12.88% 2008 2%
1989 14.88% 2009 0.5%
1990 13.88% 2010 0.5%
1991 10.38% 2011 0.5%
1992 6.88% 2012 0.5%
1993 5.38% 2013 0.5%
1994 6.13% 2014 0.5%
1995 6.38% 2015 0.5%
1996 5.94% 2016 0.25%
1997 7.25% 2017 0.5%
1998 6.25% 2018 0.75%

As at 24 June 2019, the BoE Base rate was 0.75%.

How to trade UK interest rate announcements

To trade UK interest rate announcements, you can open a position on forex, UK stocks and indices such as the FTSE 100. These markets are all impacted if the interest rate changes, because the interest rate affects the value of various financial instruments.

By Anzél Killian

Source: IG