Pound Heads for Worst Monthly Slide This Year
May 26, 2020 @ 11:26 +03:00
The pound is heading for this year’s fourth monthly slide, and a lengthening list of risks is pointing to more turbulence in June. Sterling traders look set to face heightened uncertainty on multiple fronts next month — the end-June deadline to extend the Brexit transition period, the possibility of negative interest rates in the U.K. and the economy’s tentative exit from the pandemic lockdown.
That suggests the market will likely break with the trading lull typical for the time of the year, with volatility possibly scaling highs unseen in June since the 2016 Brexit referendum. Sterling has slid almost 3% versus the dollar this month to around $1.2240 on Tuesday, falling in May for the 11th year in a row.
The current Brexit transition period finishes at year-end, which means Britain and the European Union have only until then to forge a new trade deal in order to avoid tariffs and quotas. The other option is to extend the interim period — and the last date to do so is June 30. Talks between negotiators resume on June 1, after this month’s discussions made little progress.
The pound may also see wide fluctuations around the Bank of England’s meeting on June 18. Money markets are already pricing in the prospect of sub-zero U.K. interest rates by year-end after recent comments by Monetary Policy Committee members suggested the central bank isn’t ruling out the possibility. That prospect sent two-year U.K. bond yields to a record low below 0% last week.
Pound Heads for Worst Monthly Slide This Year, Bloomberg, May 26