Cable Set for Biggest Daily Surge in More Than Month, but Faces Bumpy Path Ahead

Cable Set for Biggest Daily Surge in More Than Month, but Faces Bumpy Path Ahead

imageForexMay 26, 2020 02:11PM ET

(C) Reuters.

By Yasin Ebrahim – The pound had its biggest one-day surge against the dollar in more than a month on Tuesday, but is still likely to cap off the month in the red and likely faces a bumpy road ahead amid little progress on Brexit talks so far.

GBP/USD rose 1.23% to $1.2332.

“For the embattled pound, the news doesn’t seem to get any better these days,” UBS said, highlighting several headwinds for the currency including safe-haven demand for the dollar, renewed Brexit concerns and expectations for the Bank of England to adopt negative rates.

But negative rates are likely not baked in yet as the economy would have to get “materially worse” to prompt the BoE to cut rates to below zero, UBS suggested.

While cable is on track to end the month about 2% lower – following a coronavirus impact to the economy that has seen growth in the first quarter contract by a record 5% and ongoing worries about Brexit – it will end the year higher, the bank added.

Brexit talks have yielded little progress so far. Without a positive outcome in the final round of negotiations – set for next week before a conference in June to assess progress before the year-end transition deadline – some have raised concerns of a stalemate.

Heading into the talks, the EU is reportedly willing to extend an olive branch and ease its stance on fisheries.

The U.K. has expressed a desire to take control over access to its waters and fish when the transition period ends, rather stick with the EU’s Common Fisheries Policy, which set fishing quotas among EU member states.

Cable Set for Biggest Daily Surge in More Than Month, but Faces Bumpy Path Ahead

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