GBP/USD inter-market: Is just Brexit?
|Across the currency market, during the last 30 days, the pound has been in the group of the worst performers. Among the most traded currencies only the Mexican peso dropped more than the pound.
Compared to a month ago, the London Stock Exchange index, the FTSE 100 rose 1.08%, the UK 10-year yield rose from 0.55% to 0.72% (although during the last week it moved with a bearish bias), the US dollar rose 2.15% against the pound and the Bank of England left interest rate unchanged, mentioning that the economy performed better than previously expected.
While the current state of the UK economy appears to be “not as bad as expected” back on June 24, the day after the Brexit referendum, expectations about the future appear to be turning pessimist again. In that line, the BoE repeated that if the economy performers in line with July projections it would cut rates further.
During the current week, the divergence between the pound and other currencies become more notorious. On Wednesday the Federal Reserve left interest rate unchanged and triggered a decline of the US dollar across the board and boosted risk appetite. Despite all that GBP/USD near the end of the week, is trading at 1-month lows below 1.3000.
Today the market continued to sell the pound pushing cable to 1.2914. Also today the UK Foreign Secretary Boris Johnson (pro-Brexit) said he expects negotiations about Brexit to start early next year. The time for the materialization of Brexit appears to be approaching, playing an important role in keeping the pound weak.
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