British Pound Drops as Brexit Talks Only Show Little Progress

The British pound has sunk yesterday, weighed down by fears that only very little progress was being made in cross-party Brexit talks.

The GBP is still weak this morning, as the GBP / EUR pair dropped to 1.1539 EUR, and GBP / USD settled at $1.3057. GBP / CAD remained stable at CAD1.7397. Meanwhile, GBP / AUD and GBP / NZD were both weak, reaching $1.8140 and NZ $1.9375 respectively.

With the release of the latest CPI figures in the UK this morning, the pound is likely to gain ground if inflation rises in line with the expectations last month.

The pound fell against most major rivals yesterday as sentiment in the British currency dropped due to comments by Labor leader Jeremy Corbyn, who pointed out that talks between parties with conservatives had stalled.

The statement reduced the effect of some bullish labor figures in the UK earlier in the session, with the pound falling despite data showing that unemployment remained at its lowest level in 44 years in February. Meanwhile, wage growth remained at a decade high.

Further pressure on the GBP / EUR was caused by the release of the recent ZEW Economic Sentiment index in the Eurozone, as the EUR found support and the index jumped to a one-year high in April amid optimism that global economic conditions were improving.

At the same time, GBP / USD losses were somewhat balanced after the release of the latest US economic data, which showed that the US dollar was struggling to create momentum in the broader trade after US industrial production contracted in February.

What is going to happen next?

The main event in the short term will be the CPI figures in the UK, with the possibility of a pound rally if inflation rises in line with expectations.

Economists expect inflation have risen in the UK last month, rising to 2% and falling within the Bank of England’s target range for the first time in 2019.

While the Bank of England is currently suffering from uncertainty amid Brexit, rising inflation could leave the door open for a rate hike later in the year if a Brexit deal is completed within the next months.

At the same time, US dollar traders will focus on issuing US trade balance figures this afternoon, with the US dollar likely to face some pressure if the local trade deficit widens again as expected in February.

Finally, the Euro zone will release its trade figures this morning with the possibility of a rally in the Euro if exports continue to rise at a good pace in February.