© Reuters. British pound becomes pariah of world currencies
(Bloomberg) – The pound is back to becoming the pariah for the currency world as renewed Brexit risks exacerbating the hassle of a market that is still pulling off the shock of the pandemic.
Sterling fell a fifth day against the dollar on Friday following recent negotiations between the UK. and the European Union appeared to be a dead ball, with both parties refusing to compromise on key issues such as trade and the citizens’ movement. The pound is already the worst-performing Group 10 currency of the past month and the options signal more pain in the future.
British Prime Minister Boris Johnson threatened to step away from talks this week if not enough progress was made. That increases the risk that the U.K. ends its transition period on Dec. 31 without a free trade agreement – which puts further pressure on an economy already facing the worst recession in three centuries.
“Brexit has taken its head again,” said Ned Rumpeltin, the European currency strategy manager at Toronto-Dominion Bank. “After hibernation since the end of last year, it seems that Brexit is not quite finished as a bearish factor for sterling. G-10 currencies remain highly risk-driven against the dollar, but the return on these concerns may appear to be a significant differentiating factor for sterling. “
Buffeted by subsequent elections, unsuccessful parliamentary polls and shifts in monetary policy, volatility in sterling was at some point on par with those seen in riskier, emerging markets. The pound is already among the most unstable among G-10 currencies, only number two for the Norwegian krone this year.
It has dropped 1.7% this week to around $ 1.22 on track for the worst such decline in nearly two months. A close on Friday below $ 1.2166 – a level that turned out to be a key card support in recent weeks – could, according to Rumpeltin, set the stage for further losses.
Lee Hardman, a strategist at MUFG, sees the U.K. Currency slips to $ 1.20 or even lower in the short term. While the consensus call in a Bloomberg currency survey is that Sterling should climb 3% from current levels to the end of the year at $ 1.26, this is markedly lower than $ 1.33 predicted just two months ago.
“There is an increasing risk of investors seeing the outlook for the UK. more negative compared to other places, which encourages increased speculative sales, ”said MUFG’s Hardman. England. is in the unique position of having a significant risk on the horizon compared to E.U. trade negotiations. “
Two-month pound-dollar reversals, a positioning option gauge covering the June 30 deadline for any extension of a Brexit transition period, continue to signal a marked bearish outlook for the U.K. payment.
EU chief Brexit negotiator Michel Barnier will hold a press conference on Friday during this week’s round of negotiations.
“Do I expect a significant deterioration in the conversations at this time? No, since there is still the June and September round before the hoped-for “soft” deadline in October, “said Jordan Rochester, a currency analyst at Nomura International Plc. But it would help focus the mind if Barnier turns up the temperature. short sterling. “
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