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Photographer: Miles Willis/Bloomberg Pound Slides to Eight-Week Low as Brexit Weighs on Sentiment

The pound dropped to its lowest level since June versus the dollar amid news U.K. companies were increasingly cautious on investing as Brexit concerns grow.
Sterling touched its lowest since June 27 against the U.S. currency and reached its weakest level in 10 months versus the euro as a report from the Recruitment and Employment Confederation said its index of economic conditions had slipped to the lowest this year. The news came at a time when the U.K. is seen compromising its stance to hasten divorce talks with the European Union.
  • GBP/USD down 0.2% to 1.2796, having earlier touched 1.2791
    • Downside risks heighten following break of 1.2848 support; closing break below 1.2812 would fuel further selling momentum
    • Resistance at 1.2850-62, Aug. 21 low, daily cloud base, Aug. 22 mid price; support at 1.2794-87, June 28 low
  • PM Theresa May is expected to concede that EU law will influence the U.K. long after Brexit, in a government position paper on Wednesday that will seek to bypass just the European Court of Justice’s “direct jurisdiction” and not all of its control 
  • “It does sound like a softer stance on the issue, but it’s difficult to confidently decide whether this is GBP positive or negative,” says Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA
    • “Plus it may be difficult for FX markets to extrapolate a vague-ish comment on the ECJ’s future role in U.K. courts to what the pound should be doing in the short term. The market needs certainty and detail”
    • Bennett sees sterling at $1.26 by year-end
  • EUR/GBP up 0.4% at 0.9207, having touched 0.9214, its highest since Oct. 7
    • The pair keeps grinding higher, registering fourth day of higher high and higher low
  • Recent price action in EUR/GBP suggests “investors are still very comfortable being long the cross despite its lofty levels,” write analysts at Credit Agricole including Valentin Marinov in a client note  
    • They say that “some cautiousness may be warranted, however, given that the latest bout of GBP-weakness has brought it into undervalued territory against both EUR and USD”
    • The release of Brexit papers by the U.K. government and the softening of its stance could allay “the lingering fears about a ‘cliff-edge Brexit’ in the business community”
  • Yield on 10-year gilts is little changed at 1.09%

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