10 June 2021

Pound Under Pressure on EU-UK Trade War Concerns

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News shaping
the markets today

     

What’s happening: The British pound traded lower against major rivals on Wednesday due to the resurgence of post-Brexit jitters.

What happened: The EU and the UK failed to agree on implementing the Northern Ireland protocol, which exerted pressure on the sterling versus the US dollar and the euro.

Currency markets have remained sluggish so far this week, with traders awaiting US inflation data and the ECB meeting.

Why it matters: The British pound had remained under pressure amid Brexit talks last year. Till last week, 2021 had mostly been free of Brexit-related headlines.

However, this could change following threats by the EU to impose tariffs on British exports if the UK does not fully implement the arrangements of the Northern Ireland protocol.

The pound traded lower after the EC (European Commission) Vice President Maros Sefcovic warned of legal action if Britain continues failing to implement checks on goods moving from the country to Northern Ireland. According to the post-Brexit trading terms, Northern Ireland remains within the EU’s open market.

With tensions between the EU and the UK mounting, and the possibilities of the imposition of tariffs or a court case, the pound took a beating on Wednesday.

If the two regions fail to ink a breakthrough deal by next month, the EU is widely expected to impose trade sanctions, which could a major impact on market sentiment for the sterling.

US President Joe Biden left for Britain on Wednesday to participate in the annual G7 summit, where he is scheduled to meet UK Prime Minister Boris Johnson.

The GBP/USD forex pair fell to $1.4115, after rising as high as $1.419 earlier in the session. The EUR/GBP rose to 0.8630, recording the lowest level for the pound in a week.

With optimism around the Eurozone’s improving economic outlook and concerns surrounding the UK’s prospects in case of tariff-related headwinds, the British pound could continue to struggle against the euro.

What to watch: Markets will keep an eye on talks between the UK and EU around the terms of the trade deal. The US inflation report and ECB meeting will remain in focus.

Traders will also focus on Boris Johnson’s plans for lifting restrictions as the Delta variant of the covid-19 virus spreads in the country.

The Markets Today

     

Crude oil will be in focus today, after failing to extend its latest climb.

Context: Crude oil prices closed in the red on Wednesday, after settling above the $70 per barrel mark in the prior session.

Details: Investor sentiment remained elevated after the EIA (Energy Information Administration) raised its projections for US fuel consumption in 2021 on Tuesday. The agency now expects US fuel consumption to increase by 1.48 million bpd (barrels per day), versus its earlier forecast of 1.39 million bpd.

Oil prices rose during the session on Wednesday on hopes of upbeat energy demand from developed economies and fading prospects of Iran’s oil supplies returning to the market.

However, crude oil came under pressure following the EIA’s report on inventories released later in the day. Although the EIA reported a decline of 5.241 million barrels in crude inventories for the week ending June 4, the report also showed a rise in gasoline supplies by 7 million barrels, while distillate stockpiles rising 4.4 million barrels for the week.

WTI crude oil for July delivery declined 9 cents to close at $69.96 per barrel on the NYMEX (New York Mercantile Exchange) on Wednesday, after closing higher at $70.05 in the earlier session to record its strongest settlement since October 2018.

Brent crude futures closed unchanged at $72.22 per barrel, having previously hit $72.83, its strongest since May 20, 2019. July gasoline fell 0.7% to $2.20 a gallon on Wednesday.

What to watch: Traders await natural gas supplies data from the EIA. Working gas held in storage facilities in the US is expected to rise by 98 billion cubic feet in the latest week.

The covid-19 pandemic remains a top concern for markets, with total global infections exceeding 174.3 million.

Other Markets: US indices closed mostly lower on Wednesday, with the Dow Jones index and S&P 500 down by 0.44% and 0.18%, respectively, while the Nasdaq 100 closed slightly higher by 0.03%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

France’s payroll employment and industrial production, Turkey’s unemployment rate and foreign exchange reserves, Italy’s industrial production, South Africa’s current account, industrial production, gold production and mining production, America’s initial jobless claims and government budget, as well as China’s value of new yuan loans, outstanding yuan loans, total social financing and money supply M2.

 

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