Pound Falls on Brexit Worries, May Look Past PMI to Carney Speech

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TALKING POINTS – BRITISH POUND, BREXIT, PMI, YEN, US DOLLAR, TRADE WAR

British Pound down on Brexit worries, may look past UK PMI to Carney speech
US Dollar and Yen rise, NZ Dollar falls amid risk aversion in Asia Pacific trade
Australian Dollar manages to hold up as spotlight turns to RBA policy decision

The British Pound plunged amid renewed Brexit-related jitters in Asia Pacific trade. UK Prime Minister Theresa May ruled out a second referendum on her country’s planned withdrawal from the EU while the regional bloc’s chief negotiator Michel Barnier voiced strict opposition to London’s blueprint for the two sides’ economic relationship following the separation.

UK Manufacturing PMI data headlines an otherwise muted European economic data docket. The pace of factory-sector activity growth is expected to slow for the second consecutive month, registering at the slowest since April. Sterling may overlook the outcome however as traders look ahead to policy guidance via testimony from BOE Governor Mark Carney on Tuesday.

Deteriorating risk appetite defined performance elsewhere in the G10 FX space. The perennially anti-risk Japanese Yen and US Dollar outperformed while the sentiment-anchored New Zealand Dollar fell. The move seemed to follow on from risk aversion in European and North American trade on Friday, where worries about emerging market stress and trade war escalation continued to sour investors’ mood.

The Australian Dollar managed to hold up despite risk-off backdrop, which may reflect traders’ unwillingness to show near-term directional commitment ahead of the upcoming RBA monetary policy announcement. The central bank is widely expected to keep the target cash rate unchanged at 1.5 percent but the accompanying policy statement may offer trend-setting forward guidance.

See our study on the history of trade wars to learn how it might influence financial markets!