GBP/USD: Johnson killing the pound with his words – Rabobank

The outlook for the GBP is getting shady as British Prime Minister Boris Johnson has given a speech setting red lines about UK’s future relationship with the European Union, Rabobank reports.

Key Quotes

“GBP has dropped heavily today with cable plunging from the GBP/USD 1.32 area at the Asian open to an intraday low around 1.2978, before crawling back above the 1.30 level.” 

“It appears that the trigger for today’s drop was politically motivated. UK PM Johnson and EU Chief negotiator Barnier have been laying out their stalls ahead of the forthcoming UK/EU future relationship talks and the signals suggest that those talks could be testy. We see risks of cable trading below the 1.30 level on a 1 and 3-month view as the talks progress.”

“According to today’s speech from Barnier, the EU ‘ambitious’ offer of a trade deal requires a ‘level playing field’. The PM, however, has today made clear that the government is refusing EU rules on competition policy, subsidies, social protection and on the environment.”

“On an encouraging note for GBP investors, the FT has reported that Nissan may pull out of mainland Europe and double down on the UK production if Brexit leads to tariffs on car exports.”

“Until more clarity emerges we expect GBP to be vulnerable.”