The Pound is firmer this week as markets look to put a floor under the sharp declines suffered on Friday, September 21 on renewed fears the E.U. and U.K. are headed for a ‘no deal’ Brexit.

We doubt the Pound is ready to recover all its losses and achieve levels near 1.13 again and argue it will take concrete signs on the progress of Brexit negotiations to trigger any meaningful rally in the Pound.

Traders have been bruised by U.K. Prime Minister Theresa May’s warning that without concerted engagement by European Union counterparts Brexit negotiations risk failure; May’s comments came at a time markets were growing in confidence that a deal was in reach following a string of positive developments over the course of September.

May’s extraordinary intervention in the debate followed a meeting of E.U. leaders in Salzburg where leader after leader lined up to quash hopes for a deal being secured under the current framework.

“After a few weeks of relief, GBP fell sharply following the EU summit in Salzburg, and comments from PM May that dug in on the UK’s negotiating position. The summit offered no progress on the Irish border nor the end-state terms and although expectations for any decisive action were low, the tense atmosphere has shaken the improving sentiment in GBP,” says a note from the foreign exchange strategy desk at Goldman Sachs.

Near-term, we expect the Pound to continue reflecting swings in Brexit sentiment with gains seen on growing expectations for a deal, and losses to reflect deteriorating sentiment for such an outcome.

However, longer-term expectations for a recovery in the value of Sterling remain intact as the likelihood of a deal being secured by the E.U. and U.K. are high.

“Our base case remains that we get a deal with probability around 70%,” say Goldman Sachs. “The political theatre around the Chequers proposal is dominating the headlines but ultimately we believe the path to a deal is likely through keeping vague the detail of the end-state.”

News reports out on Monday suggest the U.K. Cabinet are moving towards establishing an united position around a more traditional Canada-style free trade agreement.

This move will likely secure the backing of Theresa May’s ‘Brexiteer’ colleagues in parliament who have advocated for such an outcome and have argued for May to ditch the Chequers proposal.

And, the contingent of ‘remainer’ MPs in her party are also likely to back such a deal as it avoids the worst-case scenario posed by a ‘no deal’ Brexit.

Of course, the major sticking point remains the Irish border, but the E.U. have hinted at concessions on the matter at various points in September; and as such there is good reason to believe the obstacle can be navigated and a deal ultimately reached.

In the event of a deal, Goldman Sachs say we “should see GBP around 5% stronger vs. EUR and USD.”

No Deal Could see Pound Fall 10%

While a wait-and-see approach to Brexit negotiations is perhaps the most sensible approach to Sterling over coming weeks, foreign exchange participants and businesses will continue to buy downside protection against a major decline in the event of talks ultimately failing.

The downside risks to Sterling remain substantial in the event of a ‘no deal’.

“The political environment at Westminster is fraught, and a breakdown of negotiations cannot be ruled out,” says Adrian Paul, a foreign exchange strategist with Goldman Sachs in London

“If it were to happen, our FX strategists argue that a combination of heightened uncertainty and prospective adjustment could precipitate a 10% nominal Sterling depreciation in the first six months,” adds Paul.

According to Goldman Sachs, if the UK were to leave the EU with ‘no deal’, two factors would be likely to precipitate a sharp depreciation in the Sterling exchange rate:

First, greater uncertainty would raise the risk premium embedded in Sterling assets.

Second, the UK would begin trading with the EU on the basis of WTO tariff rules.

Goldman Sachs 12 Month Forecasts for the Pound

On a 12 month horizon, Goldman Sachs forecast the Pound-to-Euro exchange rate to be at 1.11.

The Pound-to-Dollar exchange rate is forecast to be at 1.39.

credit to : www.poundsterlinglive.com

GBP/EUR Exchange Rate Steady’s on Robust UK Retail Sales

The Pound Sterling to Euro (GBP/EUR) exchange rate is trending in a narrow range this morning, following the release of the UK’s latest retail sales figures.

At the time of writing the GBP/EUR exchange rate is virtually unchanged from its opening levels today, after briefly fallen 0.2% earlier in the session.

Pound Sterling (GBP) Stable as UK Retail Sales Jump

The Pound (GBP) is holding its ground against the Euro (EUR) this morning following the release of the some positive UK retail data.

According to data published by the Office for National Statistics (ONS), UK retail sales climbed by 0.7% last month after contracting 0.5% in June helping to buoy Sterling sentiment this morning.

This outpaced forecasts of a more modest rebound to 0.2% but was still way behind the 1.4% rise in sales growth seen in May.

The ONS reported that the recent heatwave continued to impact sales last month, with footfall in high street stores remaining weak as people looked to enjoy the sunshine.

Sales growth last month was instead dependant on online sales, with online spending reaching a record high in July thanks to a number of discounts being offered by online retailers, while strong demand for food and drink also helped contribute to the uptick in sales.

Rhian Murphy, Senior Statistician at the ONS said:

‘Many consumers stayed away from some high street stores in July, but online sales were very strong, supported by several retailers launching promotions.

‘Food sales remained robust as people continued to enjoy the World Cup and the sunshine.’

Euro (EUR) Exchange Rates Firm as Turkey Fears Cool

The Euro (EUR) meanwhile, began trending higher against the Pound (GBP) and many of its other peers this morning thanks to the Turkish Lira’s (TRY) modest recovery over the past couple of days.

After striking record lows on Monday, the Lira has begun to creep back up, helped in part thanks to measures by Turkey’s central bank to squeeze Lira liquidity.

This in turn has aided in reducing fears that Turkey’s financial woes could spill over into the Eurozone and lent support to the Euro this morning.

However the real test for the Lira is yet to come as, Turkey’s recently appointed finance minister, Berat Albayrak will need to convince international investors in a conference call later this afternoon that Ankara is prepared to make difficult decisions in order to quell inflation.

GBP/EUR Exchange Rate Forecast: Euro to Remain Flat Despite Rising Inflation?

Looking ahead to Friday’s session, the Pound Euro (GBP/EUR) exchange rate looks to close the week in a narrow range despite an expected rise in Eurozone inflation.

Economists forecast that Friday’s Consumer Price Index (CPI) will confirm that Eurozone inflation ticked up from 2% to 2.1% in July.

However with the European Central Bank (ECB) pledging to leave interest rates on hold until at least the end of summer next year, there is little upside to the rise in inflation in the eyes of EUR investors.

Meanwhile, barring any major Brexit developments the Pound may also struggle to make any headway tomorrow as an absence of UK data provide little catalyst for movement.