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ER: Pound Sinks Against Euro and US Dollar Amid Increasing Sense of Brexit Uncertainty
 
As Theresa May is set to trigger Article 50 before the end of the month the appeal of the Pound has weakened dramatically, leaving GBP exchange rates on a sharp downtrend.

While the swift passage of the government’s Article 50 bill, and its ultimate lack of amendment, created some degree of certainty for investors the future remains decidedly unclear.

The announcement that Nicola Sturgeon will seek to hold a second referendum on Scottish independence spooked Sterling further, creating greater doubt with regards to the domestic outlook.

In the absence of fresh UK data there was little to distract from the fact that the next two years are likely to be fraught.

Fears that the UK could face a ‘cliff edge’ by exiting the EU without any transitional or final trade deal in place are also set to hamper GBP exchange rates for the foreseeable future.

Further volatility could be in store for the Pound once the minutes of the Bank of England (BoE) policy meeting are released.

Policymakers are unlikely to adopt a more optimistic view on the UK economy or monetary policy at this juncture, offering no real rallying point for Sterling.

If Wednesday’s raft of labour market data reveals that growth in average weekly earnings has continued to slow this could encourage a more dovish outlook.

This could keep the Pound to US Dollar exchange rate on a weaker footing, thanks to the increasing policy divergence between the BoE and the Federal Reserve.

Eurozone political worries failed to prevent the Euro from making solid gains against the Pound on Tuesday, despite the impending Dutch election.

The threat of another populist upset in the polls has limited the appeal of the single currency somewhat, especially with the French presidential race remaining tightly run.

However, even with the future of the Eurozone still under threat and the German ZEW economic sentiment survey falling short of expectations the GBP EUR exchange rate has remained on a downtrend.

Market jitters could increasingly drag on the Euro once the shape of the next Dutch government starts to become clear, though.

While markets have already largely priced in the impact of an imminent Fed interest rate hike the potential for further GBP USD exchange rate losses remains.

Source