Brexit jitters have pushed the pound down to a two-week low against the euro.
Sterling dropped as low as €1.1737 this morning, just a few days after hitting a three-year high over €1.20
FxPro senior market analyst Alex Kuptsikevich blames Boris Johnson’s “hard line” on trade negotiations with the EU.
The markets may have run ahead of the train again, expecting the volatility of the pound to be over. In this case, there are more and more similarities with Trump, whose arrival marked the increased uncertainty for the markets, although it still contributed more to their growth than to their decline for stocks.
Today’s UK inflation data (9.30am) may show that households are benefitting from a cap on gas and electricity bills.
Elsa Lignos of Royal Bank of Canada explains:
CPI inflation dropped to 1.5% y/y last month from 1.7% y/y previously. Almost all of that fall in CPI inflation was attributable to a cap on domestic energy prices. The effect will continue to drag on inflation again this month.
Our economists expect November CPI inflation to drop to what would be a three-year low of 1.4% y/y.
Economist and trade expert Dr Rebecca Harding says Downing Street’s Brexit strategy appears to have been taken straight from the White House:
“How should we assess Prime Minister Johnson’s proposed hard deadline for a Brexit deal? This is entirely strategic and straight out of the Trump playbook.
Boris said he’d get Brexit done and he will live by that promise. In reality, what we’ll probably see is a small deal so everyone wins, leaving many doors open and allowing things that need a little bit longer to get done at a more leisurely pace. The politics are all for show.”
Introduction: Pound sags as new Brexit deadline spooks City
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
‘Tiz the season for a festive hangover. But rather than a champagne-induced headache, City traders are feeling groggy about the prospect of a new Brexit deadline crisis next year.
The pound is languishing below its levels before last week’s election this morning, at just $1.311 against the US dollar, after Boris Jonson vowed to outlaw extending EU trade deal talks beyond December 2020.
Should a deal not be reached during 2020, Britain would then risk sliding into World Trade Organisation trading terms — not a palatable prospect, when the WTO itself is in some turmoil.
UK investors are facing up to the likelihood of another year dominated by Brexit, says David Madden of CMC Markets.
The UK is set to leave the EU on 31 January, and then the transition period will kick in until the end of the year. It would appear that Mr Johnson doesn’t want the transition period to run on and on, so he intends to pass legislation that will prevent that possibility. Even if a no-deal Brexit does happen, it won’t take place for over a year, so equity traders are not overly worried.
On the other hand, the pound sold-off aggressively yesterday on the back of the no-deal fears. All of the gains the pound made against the US dollar and the euro since the exit poll on election night have been reversed .Keep in mind the pound was broadly pushing higher in the months ahead of the election.
Also coming up
November’s inflation figures, due this morning, are expected to show that prices are rising relatively slowly. The consumer prices index is expected to have risen by just 1.4% compared with a year ago, down from 1.5% in October.
That would leave CPI well below the official 2% target, helping households as they face Christmas bills. But with wage growth slowing in the last quarter (we learned yesterday), real earnings may be coming under pressure.
The agenda
- 9am GMT: IFO survey of German business confidence: Expected to rise to 95.5, from 95
- 9.30am GMT: UK inflation data for November. CPI expected to fall to 1.4% from 1.5%
Updated