The pound headed for its weakest close in almost eight years against the euro after a survey found U.K. companies were increasingly cautious on investing amid Brexit concerns.
Sterling fell for a fourth day against the common currency as a report from the Recruitment and Employment Confederation showed its index of economic conditions had slipped to the lowest this year. Signs that the U.K. government was backing away from its tough stance on the European Court of Justice in its Brexit negotiations did little to support the pound.
EUR/GBP up 0.7% to 0.9234, having touched 0.9236, its highest since October 2016; pound is headed for its weakest close since October 2009
GBP/USD down 0.3% to 1.2790, having earlier touched 1.2782
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’s government will accept a “close cooperative relationship” with the ECJ, in which both past and future rulings would still apply to the U.K. in a concession aimed at accelerating Brexit talks
“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
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”