Political disarray continues to drag on the British Pound against the US Dollar (GBP/USD), with the pair facing up to its worst monthly losses since May last year. The situation is however even more distressed for the Pound against the Euro (GBP/EUR) which is on track for its worst monthly performance in almost two years. With Donald Trump firing off a fresh salvo of tariff threats overnight too, it seems inevitable that currency market volatility won’t abate any time soon.
By mid-morning, the Pound to Euro (GBP/EUR) exchange rate was trading in the region of 1.1282, while the Pound to US Dollar (GBP/USD) exchange rate is trading at 1.2578.
Pound on Course for Worst Monthly Slide Since August 2017
Concern that no new progress was being made over Brexit and an increasingly hostile rhetoric with senior European Union politicians has seen the Pound come under fresh selling pressure as the month-end nears. Against the Euro, Sterling is on course for its worst monthly slide since August 2017. Although sluggish German inflation data due for release later today could see some of these gains for the common currency being reversed, the reality remains that a no-deal Brexit is moving back onto the table. Markets remain wary of any such outcome and with this lingering, meaningful gains for Sterling could be difficult to find.
Trump Tariffs for Mexico Cause US Dollar Surges Versus Mexican Peso and Canadian Dollar
There was a surprise from the White House last night after Donald Trump announced a 5.0% import tariff on all goods from Mexico from June 10th, until all illegal immigration is stopped. The move came just as lawmakers in Washington began the process of trying to ratify the replacement North American Free Trade Agreement (NAFTA) and as a result, served a blow to both the Mexican Peso (USD/MXN up 3.0%) and the Canadian Dollar (USD/CAD up 0.3%).
The bigger concern here is that Donald Trump shows no sign of relenting from his tariff-driven strategy despite the damage this may cause to the US or wider global economies. Europe is already bracing itself for a round of retaliatory tariffs over alleged illegal subsidies for Airbus. It seems unlikely that these will take effect before a WTO ruling, which is due around the end of July, but with swift unilateral action rather than diplomatic negotiation remaining the dominant theme, currencies remain liable to big swings emerging off the back of moves like this.
GBP/USD, EUR/USD, GBP/EUR Exchange Rate Movements
The Pound has fallen against the US Dollar (GBP/USD) every day this week and as it stands, there’s no sign of any let-up being seen here. UK political disarray dominates the agenda and with no quick resolution in sight here, there’s scope to see this selling being sustained for some time yet.
Similarly, the Euro has been under pressure against the US Dollar (EUR/USD) since the start of the week. There are questions being asked as to the future political direction of the European Union, while the shadow of punitive US trade tariffs will also continue to linger over the common currency.
The Pound has spent the week trading sideways against the Euro (GBP/EUR). There’s no sign of any reversion emerging from the sustained sell-off seen around the middle of the month, although with no indication as to where UK politics are going any time soon, support is likely to remain thin on the ground.
Why Did it Move? – USD/JPY
The Japanese Yen fell to its lowest level in four months against the US Dollar (JPY/USD) last night, with a combination of factors in play. US trade tariffs against Mexico served up a reminder that use of this tactic shows no sign of abating, while-worse-than-expected Japanese economic data covering housing sales and consumer confidence also took a toll on the currency. USD/JPY fell from 109.60 before the tariff announcement to below 109.00 this morning.