There are not many reasons for investors to hold on to sterling at present – economic data is weak, the political picture is a circus and overall, sentiment is poor.GDP data due tomorrow is likely to show the UK economy grew by 0.4% in the last quarter - not even half as fast as America.
Thomson-Cook predicts that the pound could fall further this autumn as the negotiations reach fever pitch:
“On top of this, we are still concerned that the worst is yet to come with no-deal Brexit noises likely to reach a crescendo as we get closer to the European Council meeting in October, unless an Article 50 extension can be agreed upon.
Remember what happened to sterling as it became clear that we had voted to leave the EU despite most market participants still believing that Brexit would enable the UK to remain a member of the single market with broad equivalence of regulations in place?
“Well, none of that exists under this potential cliff edge scenario. While some Brexiteers may hear the explosions and think that they are celebratory fireworks, the reality would likely be one of economic devastation.”
Rouble hits lowest level since 2016
The US said it would impose sanctions later this month, after concluding that Russia used the Novichok nerve agent to poison Sergei Skripal and his daughter Yulia.
This could include a curb on export licenses for Russia to purchase items with national security implications, Associated Press says.
Russia’s currency has weakened this morning, hitting 66.2 roubles to the US dollar for the first time since August 2016, following heavy losses yesterday.
Shares in state airline Aeroflot have fallen to a two-year low, following reports that America could downgrade diplomatic relations with Russia and suspend Aeroflot’s ability to fly to the US.
Russia has criticised the move, accusing America of “far-fetched accusations”.
Hussein Sayed, chief market strategist at FXTM, fears the rouble could fall further, causing pain for Moscow.
The period of sideways trading which lasted for four months seems to be over for the Ruble. The Russian currency fell more than 3.3% on Wednesday as Trump’s administration proposed fresh sanctions following the poisoning of a former Russian agent in the U.K.
The decline in oil prices also helped to intensify the fall in the Ruble and with such uncertainty, investors will need to price in further risk premium on Russian assets. Investors will likely ignore the Russian economic fundamentals in the weeks ahead and focus on political developments.
The Ruble may find some support around the 67 level, but a break above will lead to further selling pressure.
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Budget airline Ryanair warned yesterday that hundreds of flights will be cancelled on Friday. Pilots in Netherlands, Germany, Sweden, Belgium and Ireland are striking as they push for better working conditions.
Today’s fights are already being disrupted - 35 have been delayed due to a lack of air traffic controllers in parts of Europe, the airline says.
Some City economists have predicted the pound would tumble back to $1.20 in a ‘hard Brexit’ scenario.
The Independent’s Alex Watson explains:
So if you can possibly help it, don’t swap your money at the airport! The Post Office, for example, are offering around €1.08471 per pound.Exchanging currency at the airport has always been expensive, but holidaymakers are now facing exceptionally poor exchange rates if they wait until just before they fly to buy.
Foreign exchange company Moneycorp (who have locations in Bristol, Central London, Gatwick, Stansted, Southampton and Southend airports) were offering 0.94 euros to the pound at Gatwick airport, according to The Sun. This rate means holidaymakers would get 94 euros back when exchanging £100.
The agenda: Pound under pressure over Brexit
Brexit fears are hitting holidaymakers in the pocket.
Sterling has slid to its lowest level agains the US dollar in almost a year, nudging $1.2850 in the foreign exchange markets this morning.
The pound is also suffering against the euro, dropping to €1.107 for the first time since last October.
Traders are rushing to sell the pound because they fear Britain is about to crash out of the European Union without a deal next March. These fears are weighing on the currency, making overseas holidays more expensive and also pushing up the cost of imported goods into the UK.
David Madden of CMC Markets says there is a lot of anxiety in the City:
This weakness is threatening UK living standards; costlier imports means higher inflation, which will eat into pay packets.Sterling suffered greatly yesterday as Brexit-related fears were doing the rounds. GBP/USD fell to a level not seen since late August last year, and EUR/GBP hit a level last seen in November 2017. The pound is still coming under pressure from Liam Fox’s comments – the possibility of a ‘no-deal Brexit’ is 60-40.
Dealers are extremely fearful about the prospect of the UK leaving the EU without an agreement in place, and until some clarity is provided, the pound would remain weak.
Our economics editor Larry Elliott explains:
Although the government has insisted that it still expects negotiations with the EU over the next few months to prove successful, currency traders have been prepared for a deal not to emerge and are now hedging against the possibility of the hardest possible Brexit.
With less than eight months to go before the UK’s planned departure date, financial markets have now started to take seriously the chances of chaos at the borders and damage to supply chains
Also coming up todayRussian assets are under pressure after the US announced sanctions on Moscow over the Salisbury Novichok attack. The ruble is dropping in early trading, adding to last night’s tumble (more on that shortly)...
In the City, estate agent Savills have posted a 18% drop in profits, and warned that:
Ongoing political and economic uncertainty created by the negotiations to leave the EU make it difficult to predict market volumes for the rest of the year.Holiday firm TUI is sticking to its profit forecasts, even though the heatwave has encouraged some people to stay at home.
It’s also a big day for House of Fraser; the retail chain’s struggling creditors are expected to asses competing rescue bids from turnaround firm Alteri Investors and retail tycoons Philip Day and Mike Ashley today.
We also get the European Central Bank’s latest economic assessment, and the regular weekly US unemployment figures.
- 9am BST: The European Central Bank publishes its economic bulletin
- 1.30pm BST: US weekly jobless figures