The pound shows a record decline in the last five weeks
The U.S. currency gaining for the seventh straight session, once again updating a 27-month highs. The dollar index is growing 0.3% from the beginning of the day, and reached 99.2. In addition to trade disputes, which are the main driving force behind this trend, the DXY also coming up due to the General decline of the European currencies after the publication of weak statistics in the EU.
British pound drops fifth straight trading session. A new wave of fears of the consequences of Brexit returned GBP in the region of 36-year lows: at some point this morning he fell through 1.2000. Later on Tuesday will vote on holding early elections and the possibility of blocking the exit from the EU without a deal. However, the chances of that are small since most of the votes from the ruling party. This caused the pressure on the currency and debt markets, which are now extremely negative about the situation. Based on this logic, the pound will have hard times in case of failure of the above initiatives.
Worth a look from another angle. Traders avoid situations without specifics, and the fact that all other possibilities are swept away, reducing the range of uncertainty. In this case, the initial market reaction could be followed by the restoration of the British currency. A similar reaction sterling showed in 2017, feeling the bottom near 1.20 in the dollar – approximately the same marks as now.
It’s a notable reaction in the stock market. The FTSE100 index gained 3.1% over the last 5 trading sessions, while the GBPUSD fell by 2.1%. This is indirect evidence that buyers consider the current exchange rate of the British currency as low enough to support the competitiveness of British companies. And this despite the fear of the consequences of a disorderly breakup of the EU.
Similarly, the Euro and the stock market in Europe exhibit the opposite signals. While the EURUSD updates lows in may 2017, fell to 1.0935, the DAX is forming a rebound after recent declines. Over the past 4 trading session, the Euro lost 1.3% against the dollar, while German stocks rose in price by 2.7%.
Stock purchase Germany intensified just at the moment when the Euro fell to the lows of August, marking the transition from consolidation to decline. It could be a signal that stock markets positively evaluate the weakening of the Euro and the pound as a measure to enhance economic growth, despite signs of its decay, which we receive in the last days.
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