The Euro has today rebounded from this weekend’s sell-off but there has been no respite for Sterling with GBP/USD down for the fourth consecutive trading session to below 1.29 at time of writing. Weak UK manufacturing PMI data for August were the catalyst for today’s down-move but more fundamentally Brexit-related concerns continue to weigh on Sterling. This would suggest that even a strong services PMI number for August, due out on Wednesday, may not have a lasting positive impact on UK markets.
It is unclear whether the UK and EU will be able to reach a post-Brexit deal in the next couple of months and in any case there is seemingly little support within the government, parliament or electorate for the post-Brexit deal which Prime Minister May outlined a month ago. Should the UK and EU be unable to reach an agreement before November or should either the British or EU parliament vote against the deal put forward to them, there is a distinct possibility of the UK exiting the EU without a deal in place (“Hard Brexit”). Alternatively, this could lead to a second referendum and, based on recent opinion polls, the preferred option for British voters would be for the UK to remain in the EU. Sterling price action suggests that at present markets think the latter route is still unlikely.
