Something like that in the history of the British pound and the euro has not yet existed. The British currency has been losing to the euro for 11 weeks. This is an unprecedented event when it comes to consistent weeks of loss in a row. As a result, the pound is the cheapest in relation to the euro since the beginning of January.
The GBP exchange rate with the US dollar also does not look better. The GBP / USD rate is systematically approaching the minimum, which we observed in January, when a "flash crash" occurred. This seems to be a sudden breakdown of the quotations of the financial instrument mainly due to low liquidity on the market and algorithmic orders. On the other hand, the GBP / PLN exchange rate returned to 4.72 after a slight correction and is close to the lowest levels since August 2018.
Today, the depreciation of the pound has accelerated, despite good data on wage growth or the unemployment rate. The unemployment rate in the United Kingdom stood at 3.8 percent, remaining at the lowest level since 1974. The publication was in line with market expectations. Meanwhile, the average earnings in May excluding bonuses increased by 3.6 percent y/y, which is the largest increase since August 2008. The increase in wages results mainly from the lack of qualified employees in Great Britain.
It seems that if there were no uncertainty about brexit, the above data could be seen as an increase in chances for interest rate hike, as wage pressure could translate into higher prices in the economy. Meanwhile, the British currency seems to be losing since both candidates for the UK prime minister said they would like to remove the Irish border protection plan from any agreement with the European Union. Both Boris Johnson and Jeremy Hunt are in favor of this solution, which increased the chances of hard brexit and thus interest rate cuts.
On the interest rate market, the chances of cutting the Bank of England interest rate in 2019 increased to 53 percent. from 47 percent on Monday. The market estimates that by the fourth quarter of 2020 the main interest rate will be cut by 25 basis points with a nearly 90 percent probability.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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