THE POUND FALLS AS FEARS OF A HARD BREXIT MOUNT

After a brief sharp rise yesterday, the pound fell to the lowest point since 17 January. The pound fell as investors pondered about the statement from the Bank of England yesterday.

During the press conference, Mark Carney mentioned that they reached a consensus based on a neutral stance about Brexit. In other words, they assumed that Brexit negotiations will go on smoothly.

Today, the EU’s chief negotiator, Michel Barnier said that the Brexit transition was not assured if the UK continued with its hardline positions. After this statement, the market assumed that chances of a soft Brexit were indeed over. As of writing, the cable is down 50 bps to trade at 1.3830. The EUR/GBP pair rose by almost a percentage point.

Early in the morning today, US Congress passed a sweeping two-year spending budget which ended a brief government shutdown. The new agreement, which had a bipartisan support, will remove the debt ceiling for a year and increase government spending by $300 billion. After the bill passed, the dollar index rose by 0.30% before shedding the gains later.

The Australian dollar continued its downward movements against the dollar, touching the lowest level since 14 December. Later in the day, the pair tried to recover some of the losses, rising to a high of 0.7830.

AUD/USD

The pair started the downward trend on 26 January when it reached the 0.8135 level, which was its highest level since May 2015. The question among traders is whether the pair has now bottomed or whether it has some more downside to go. As shown below, the pair’s RSI is currently near the overbought zone and is trading below the 25 and 50-day SMA. This is an indication that the pair could soon start moving down again.

EUR/USD

After the partial shutdown of the government ended, the dollar rose against the euro. This was a brief move since the pair is currently down 0.14%. However, in the past two days, the pair has been on a narrow range as investors think about inflation and the rising bond yields. At this level, the pair could break out in either direction.

EUR/GBP

Today, this has been one of the most active currency pairs. Yesterday, after the BoE report, the pair fell to the lowest level since 1 February. Then, later in the day, it started to rise as investors started to scrutinize the press release and statement from Mark Carney. Today, following the comments by the EU’s chief negotiator, the pair rose to the highest level since Wednesday. At this point, as traders take profits, the pair could see a slight retracement, potentially to the 0.8843 level.