Brexit concerns put pressure on the Pound

After the Pound surprisingly hit multi-month highs across the board last week, we are now seeing the volatility that was expected for September. £-€ rates are down 1% since Thursday and the £-$ has lost 3-cents in a week, both mainly because of recent Brexit concerns.

Boris Johnson has told The Telegraph 'If there is no breakthrough by October 15th, the UK will accept no deal and move on'. He also added "Britain would prosper mightily one way or another". There has been more 'muscle-flexing' on the UK side with Chief Negotiator David Frost telling the Sunday Times "The UK is not afraid to walk away from talks" and Foreign Secretary Dominic Raab suggesting the week ahead is a "wake up call for the EU" and that "the best moment to strike a deal is now".

The latest and the most important round of negotiations (judging by the above comments) begin today in London. These talks are likely to dominate the Pound this week and probably into next week. This means we can expect to see the Pound under pressure and the downward trend to continue unless there is a breakthrough. 

A report from a Downing Street source, said last week that there is a 30% chance of a deal being secured. The market consensus is still around 60%, but if expectations get lowered the Pound will suffer. We still believe a 'bare-bones' deal will be agreed, but that is based purely on 'gut-feeling' more than anything. 

For anyone with larger transactions in the pipeline, if you have not yet hedged some of what you need, now would be the time. It's much better to be safe than sorry in this circumstance. You may think a deal could happen and within 3-months rates rise 5%, but just as likely is a no-deal scenario where rates could trade around parity level. A 'wait and see' approach is extremely risky without banking some of what you need now.

Data-wise, there is certainly some potential market movers ahead this week. Tomorrow's GDP for the Euro-Zone will be key as well as the ECB conference on Thursday, where they will talk about monetary policy and the economy. For the UK & US, we have to wait until Friday for economic fireworks, which will probably coincide with the conclusion of the weeks trade talks. A volatile end of week is expected. 

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