BoE offers bleak forecasts as Brexit 'fog' deepens further

Cornelia Mascio
Febbraio 10, 2019

Earlier in the session the currency was lifted by a report that United Kingdom cabinet ministers are discussing plans to delay Brexit by eight weeks.

The EU on Friday urged British Prime Minister Theresa May to grasp an offer from the Labour opposition to break an impasse over Brexit, but that would reverse May's determined position.

The pound slumped to a two-week low on Tuesday after a survey suggested the British economy was flat-lining.

The currency has been supported in recent weeks by belief that a last-minute agreement will avert a no-deal Brexit. This comes as Theresa May travels to Brussels for further discussions on the Brexit withdrawal agreement with EC President Jean Claude Juncker, although the European Union has previously ruled out changing the terms of the agreement. "However, that should not prevent the market from reflecting the changing likelihood of a "no deal" proportionately in the GBP exchange rates", said Ulrich Leuchtmann, an FX strategist at Commerzbank in Germany.

Sterling has broken convincingly below the 200-day moving average against the resurgent dollar, an important technical level that prompted more investors to join the sell-off.

With another parliament vote due in mid-February, derivatives markets are painting a cautious outlook for the pound with shorter-dated risk reversals indicating a greater bias for sterling puts over calls.

Later today we will see the Bank of England (BoE) release its latest interest rate decision, with expectations for rates to remain steady at 0.75 per cent. The next move will probably hinge on how Brexit plays out.

The UK Prime Minister and her Brexit is stuck between the rock and the hard place as the European Union insists on the Irish border backstop while Brexit hardliners from within her own Conservative party refuse to pass the deal with the backstop in House of Commons. It was also notable than within an hour of the Bank's release, the Pound had recovered all its earlier immediate loss against both the Dollar and the Euro, despite the Governor's gloomy talk about a no deal Brexit, which the apparently "not ready" for (despite having had two and a half years to get ready).

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