Sterling slides near post-ref low; Dax plunges 300 points

Summary:

• Sterling slides towards post referendum low

• Central banks come into focus

• Dax drops sharply on multiple negative developments

• US stocks holding up relatively well

• Market Alert: 3 big winners from the Fed cut

The sell-off in the pound gathered momentum overnight with the exchange rate against the Euro falling to a new 22-month low while the GBP/USD market tumbled to levels not seen since March 2017. After a relatively sanguine period FX Traders now seem to be waking up to the very real possibility of a no-deal Brexit and there’s a sense of fear creeping back into the market. The post referendum lows against both the dollar and the Euro are now just a couple of percent away and any further adverse developments could see these broken in the not too distant future with the pound set for its worst month since October 2016. 

The bulk of the depreciation in the pound seen recently can be attributed to concerns regarding Brexit, with the UK set to pursue a risky game of brinkmanship in pushing for a better deal. The next couple of days may see the market’s attention shift away from solely focusing on the political developments with the Federal Reserve and the Bank of England both set to announce their latest policy decisions by Thursday lunchtime.

While the pound continues to languish around multi-year lows the most eye catching move of the day so far has come in the Dax as the German stock market has experienced a swift drop lower once more. The benchmark performed a dramatic U-turn after the ECB meeting last Thursday and has experienced a comparable move lower today. There’s no immediate catalyst for the declines although disappointing earnings updates before the open from Lufthansa and Fresenius have done little to help the mood and the latest Trump tweet caused the sell-off to accelerate. Trump once more took aim at China in his barrage on social media and while the Fed will rightly take the Lion’s share of attention in the next 36 hours it is worth remembering that news on US-China trade talks could also move markets. 

The moves weighed on US indices on the open with the S&P500 declining by almost 1% from last night’s close in early trade, but buyers have stepped in since then and the market has recouped around half the declines by the European close. The decline in the S&P500 has seen the market move below the H1 Ichimoku cloud once more. Longer term there’s little doubting that the market remains in an uptrend but the weakness could grow a little larger ahead of the Fed and see price return back towards prior support around 2998.

Our preview of the Fed decision can be found here