A key member of the Bank of England has given some Sterling-supportive comments but the GBP to EUR conversion is likely to remain under pressure while trapped within a negative technical configuration.
Bank of England Kirsten Forbes said, in a speech at Imperial College London, that she was not convinced further interest rate cuts are warranted at the Bank.
The policy-maker said the econoic aftermath following the EU vote was "less stormy" than anticipated and resilient consumers and growing exports have partly offset a decline in investment intentions.
As a result Forbes is, "not yet convinced" easier policy is needed - something that will be welcomed by those hoping for a firmer British Pound.
However, that Sterling did not rally in the aftermath of the speech suggests markets expected as much from Forbes who is a noted hawk - i.e she is typically more ready to resist rate cuts while being one of the first to vote for rate hikes.
Nevertheless, if other members of the Bank's MPC feel the same way, Sterling may have seen the worst come to pass.
Charts Confirm GBP/EUR Pointed Lower
Sterling’s continued sell-off is mirrored in the GBP/EUR four-hour chart below, which shows the pair in a descending channel.
Whilst it is tempting to see the currency roll over at the 1.1640 highs as the start of another leg lower, there is still a possibility the pair could correct up to the upper border of the channel.
A break below the 1.1585 lows, however, would probably lead to an extension down to the next target, initially at 1.1525 at the lower channel-line and then 1.1500.
The Brexit Debate Evolves, and Not in a GBP-Friendly Manner
Smart Currency Exchanges CEO Charles Purdy seems to see an autumn melancholy mirrored in the pound’s current decline:
“As the daylight hours fade and the temperature continues to slide, it is becoming very clear that autumn is upon us.
"Leaves are starting to wilt and brown and it won’t be long before we see them mimic the price action of sterling – and fall,” he starts this morning’s note," he writes.
Purdy puts a “lack of good news” down as the principle culprit, although this could also be turned around into ‘more bad news’ and be closer to the truth.
The main reason for the pound’s poor performance in mid-week trades was an article in the FT which suggested 5,500 UK companies would lose out if the UK lost EU passporting rights.
EU passporting enable UK financial services companies to freely and uninhibitedly sell their services across the whole of the EU.
The whole issue of passporting is a complicated one with figures showing the vast amount of EU capital market activity is conducted in the EU while the UK holds a 74% share of EU trading in OTC derivatives.
So, London is deeply embedded in the European financial system and it could trigger tremendous problems for European businesses looking to raise finance were the doors shut on London.
Nevertheless, European business leaders continue to talk tough against Britain, effectively saying the Europe will easily absorb the country's financial services functions.
The glaring question is, if it were so easy, why has it not already happened?
Indeed, Moody's this week wrote that they believe the City of London will likely maintain its access to the European market following Brexit.
Moody's made its assessment based on the fact that most EU financial-services law recognises that some non-EU countries have rules and oversights as tough as its own, the credit-ratings company said in a report yesterday.
While the UK leaving the single market would increase costs for the banks, it would likely be "manageable", Moody's said.
"In particular, we consider that the third-country equivalence provisions contained within the incoming MiFID II EU directive may provide firms with an alternative means of accessing the single market," said Simon Ainsworth, senior vice president at Moody's.
Nevertheless, there appears to be a concerted effort to break London, and this will loom over sentiment, and the UK currency for many months.
It now seems probable that the Chancellor Philip Hammond is going to take a tough line in negotiations with the EU and we could get a ‘hard Brexit’ and this will lead to a loss of EU passporting rights.
Ironically it seems that the UK economy’s resilience in the aftermath of the referendum has bolstered Hammond’s negotiating resolve.