The pound was once again the worst performing major currency on Monday as the May’s government stance on Brexit added renewed pressure on the British currency. The dollar did not fare much better as weaker US equities weighed on the greenback ahead of this week’s FOMC meeting, while the yen benefited from the increased risk aversion to advance higher against all major pairs.
Having stabilized late on Friday and in Asian trading today, the pound resumed its downtrend at the start of European trading amid fresh uncertainty about Brexit as well as about the durability of Theresa May’s premiership. Reports that the UK Conservative party had reached a deal with a small Northern Irish party to get the necessary majority needed after last Thursday’s general election resulted in a hung parliament had helped sterling stabilize on Friday. However, it has since emerged that the Conservatives and the Democratic Unionist party are still in talks over the details of the deal, and this could potentially delay the start of the Brexit negotiations scheduled for June 19.
Hopes that the election outcome would provide some consolation by leading to a ‘softer’ Brexit as it would force May’s government to reach consensus with other parties had provided some relief to the pound after the shock vote. However, the Brexit Secretary, David Davis, today said nothing had changed and that the UK will still be leaving the single market.
The pound slipped back below the 1.27-dollar level after Davis’ comments and continued to drift lower in late European session to trade just above 1.2560 dollars. It was down more sharply against the euro and the yen at 0.8845 pounds per euro and 139 yen.
The yen enjoyed broad gains on Monday on the back of increased safe-haven demand. A big sell-off in US technology stocks on Friday, which spread to Asian and European equities today, contributed to the risk-off mood. Cautiousness ahead of central bank meetings by the Fed, the Bank of Japan and the Bank of England later this week also dampened market sentiment. However, these were of little boost to gold prices as the precious metal came under pressure from rising US treasury yields ahead of Wednesday’s expected rate hike by the Fed. Gold prices were last flat on the day at $1266 an ounce.
The higher US yields were unable to support the greenback though as the dollar struggled to hold on to the 110-yen level. With the rout in tech stocks appearing to continue for a second day, the dollar slid to around 109.80 yen in late session.
The euro was slightly firmer on Monday following the French legislative election on Sunday that put Macron’s party on track for a huge parliamentary majority. The single currency was last trading at just above 1.1200 dollars.
In commodities, oil prices rallied by over 1% due to a technical rebound. WTI oil stood 1.3% higher at $46.42 a barrel, while Brent was up a similar amount to trade at $48.75 a barrel.