Sterling in free fall as UK prepares for a no-deal Brexit
Sterling continued the free fall that started in April as investors continued to focus on Brexit. In the past few days, the likelihood of the country leaving the EU without a deal has increased substantially. The new cabinet by Boris Johnson is made up of leading pro-Brexit members, who believe that the country will do just fine. They believe that the UK will continue doing business with the EU using the World Trade Organization (WTO) rules. The EU has said that the deal negotiated by Theresa May was the best and only available option. Meanwhile, the UK released positive economic data. In June, mortgage approvals increased by 66.4k while mortgage lending rose by GBP 3.73 billion.
Global stocks rose today as talks between the United States and China are set to start this week. A high-level delegation of American leaders has already arrived in Beijing to restart the talks. However, investors are pessimistic about the new round of talks. While the two countries have agreed on a number of things like the Chinese need to buy more American goods, there are core differences. For example, China has opposed the US requests on intellectual property and the interruption of the country’s industrialization goal. Therefore, there is a likelihood that the talks will not yield enough results.
The euro declined today against the USD after more weak data from the European Union. In Spain, the headline CPI declined by -0.6% in June. This was much lower than the expected gain of 0.2% and May’s drop of -0.1%. On an annualized basis, the CPI increased by 0.5%, which was lower than the expected increase of 0.6%. The pair also declined ahead of the anticipated FOMC decision. The bank is expected to lower interest rates by 25-basis points, which will be the first rate cut since the 2008 crisis.
The EUR/USD pair declined to a low of 1.1110, which is below the 21-day and 42-day moving averages on the four-hour chart. The RSI remains slightly above the overbought level of 30 while the price is along the lower line of the Bollinger Bands. The pair will likely continue moving lower in the American session ahead of the important data from the US and Europe expected tomorrow.
The GBP/USD pair dropped sharply as investors continued to focus on Brexit. The pair reached a low of 1.2295, which is the lowest level it has been since 2017. On the daily chart below, the pair is below the short, medium, and long-term moving averages as shown below. The price is also along the lower line of the Bollinger Bands while the RSI is slightly above the oversold level of 30. The pair will likely continue moving lower.
The AUD/USD pair declined sharply to a low of 0.6900. On the hourly chart, the pair is trading below the short and medium-term moving averages while the RSI has moved to the oversold level. The momentum indicator is slightly below the important level of 100. The pair will likely remain along this support ahead of the FOMC decision and other important data from Australia that will be released tomorrow.