Sterling fell to it’s lowest level since 2009 against the euro on Wednesday as further uncertainty played on investors’ mind surrounding Brexit, while the single currency was firmer on positive manufacturing data.
Concessions were made in the latest government position paper as UK Prime Minister Theresa May stated that EU law will influence the UK long after Brexit which put pressure on an already weakening pound.
This continued uncertainty weighed on not only sterling, but also UK companies as businesses feel less confident about the future of the British economy going forward.
Against the US dollar, the pound traded 0.28% lower to 1.2787 by 1700 BST, testing a break of the daily support at 1.2792.
Manufacturing surveys out showed purchasing managers’ indices for France and Germany expanding to 55.8 and 59.4 respectively, giving the single currency a boost against sterling and moving the pair closer to parity to trade 0.6% higher to 0.9227.
Richard Falkenhall at SEB said, “In terms of the euro positioning, we are at extremely stretched levels both against the dollar and the pound.”
The greenback took a hit on Wednesday with the spot dollar index down 0.27% to 93.291 following comments from US President Donald Trump who threatened to shut down the government if he does not get funding to build a wall along the US/Mexico border. Aside from this, he also threatened to terminate the NAFTA (North American Free Trade Agreement) treaty with Mexico and Canada after talks between the three countries broke down recently, further stretching US domestic relations.
This was enough to balance GBP/USD moves on the day, but took its toll on the dollar in its cross against the euro with EUR/USD trading 0.33% higher to 1.1800.
“This year’s heavy unwind in long dollar positions suggests that currently the dollar should be more susceptible to good news than to bad,” said Rabobank in a note.
All eyes will shift to Jackson Hole talks to be held in Wyoming later this week, as central bankers meet to discuss world economic events.
With a mild risk-off sentiment theme grabing the markets, safe haven currency the Japanese yen saw good buying interest with USD/JPY trading 0.4% lower to 109.91 and USD/CHF also lower on the day to 0.9668 by 1700 BST.
Looking ahead for the rest of the week, traders will be looking for clues on future policy from talks by Fed chair Janet Yellen and ECB President Mario Draghi, both due to speak on day 2 of he Jackson Hole symposium on Friday.