Sterling has come under pressure today following reports that Brexit talks between the ruling Conservative Party and the opposition Labour Party were close to breaking down. The two largest political parties in the UK have for the past month been holding talks to see whether a compromise could be found which would allow Prime Minister May to get a Brexit deal through parliament. She was reportedly willing to offer the Labour Party a number of concessions, including temporary UK membership of the EU customs union, in order to gain the parliamentary support of Labour MPs. However, Labour leader Jeremy Corbyn is seemingly holding out in the belief that his neutral stance on Brexit will be more damaging to a ruling Conservative Party short of a parliamentary majority.
The GBP/USD and GBP/EUR crosses are back at the bottom of their recent ranges, at respectively 1.30 and 1.16, with Sterling seemingly enjoying little support from decent retail sales data for April. The BRC report showed that total retail sales rose 4.1% yoy, which was admittedly a little weaker than expected due to warm weather in the month. EUR/USD has for the third consecutive session traded around 1.12, buoyed by the release of data showing a higher-than-expected increase of 0.5% mom in German industrial output in March.
The Kiwi Dollar temporarily dropped followed the RBNZ’s policy meeting this morning but NZD/USD has bounced back to its pre-meeting level of around 0.659. As expected the RBNZ, amongst the more dovish major central banks, cut its policy rate 25bp to 1.50% but indicated that the macro outlook looked to be more balanced than before the rate cut. The market is nevertheless pricing in a further 21bp of rate cuts.
