The pound saw it’s biggest single-day drop for over two years last week, as the uncertainty surrounding Brexit intensified. Theresa May presented the agreed terms of the divorce agreement from the EU to her peers, which was met with uproar and a host of ministerial resignations, including Brexit minister Dominic Raab. Markets were left in shock by the hugely negative reaction to the deal and the pound started to freefall. The home currency saw a 2.8% swing between the week high and week low versus the Euro and a fall of 2.4% against the US Dollar, both significant movements.
The week ahead
GBP – It will be all eyes on Theresa May this week as the Prime Minister struggles to hold on to power. There is the possibility that Conservative protestors, seeking to oust May from her seat, could get the 48 votes needed to force a vote of no confidence. In the unlikely event that Theresa May is defeated in a leadership challenge, I would expect the pound to fall significantly further, as the chance of a ‘no deal’ Brexit would greatly increase. May is however heading over to Brussels this week for further talks, as are her negotiators. The EU can clearly see the deal that is currently on the table is very unlikely to pass through the House of Commons, so there may be some much-needed wiggle room. BoE Inflation Report Hearings will also be released tomorrow, which have the potential to move Sterling crosses.
EUR – The ongoing stand off between Brussels and Rome regarding the Italian budget will be the main mover for the single currency this week. Neither side are looking likely to back down and if this continues, we could see some Euro weakness across the board this week. Italy has the second highest debt in Europe and the EU and International Monetary Fund (IMF) alike believe that the Italians manifesto of spending, which would increase their current deficit, will only add to their levels of debt. There are several key data releases out of the Eurozone this week too. Services and Manufacturing PMI for November are both released on Friday which could have a bearing on Euro movements at the end of the week. Consumer Confidence and Current Account numbers out this week are also worth keeping an eye on if you have an upcoming Euro requirement.
USD – The dollar has started the week on the back foot as members of the Federal Reserve have suggested that a slowdown in global growth may have an impact on the US. One member stated that interest rates may have now risen to the rate where the economy is neither growing nor shrinking, which would be ideal for the Fed and could lead to a slow down in potential future rate hikes. A rate hike this month is already priced in to the Dollar so should this be the case and the Fed were to pause their current plans then the USD would significantly weaken. PMI figures and Existing Homes Sales are the hard data releases to look out for this week.