EUR/GBP trades to 11-month highs today
The pound may be off the year's low against the dollar by more than 200 pips, but don't let that fool you. It is still the second worst performing major currency (only the kiwi is worse) in August trading as we look to round off the month.
Things started off with the BOE hiking rates before sending a message that they will pause thereafter - markets are now looking to August next year for the next hike, which is still a long way to go. Then, the continued talks of a no-deal Brexit drove the pound even lower from there.
The latter is going to be the most important factor when it comes to trading the pound in the coming months. It doesn't look like any progress will be made in September and last-minute negotiations/discussions ahead of the EU Summit in October is likely not going to produce anything fruitful.
It's looking more and more likely that the can will be kicked down the road to November or December. That will only help exacerbate fears of a no-deal Brexit outcome even more. If there's anything traders hate the most, it is uncertainty.
The longer Brexit talks drag on, the more uncertainty it presents and that is not a good omen for the pound. The real concern is about pricing in a no-deal Brexit. You can't really quantify something like that. The more those concerns grow, they tend to feed on itself and price just goes where it wants to go.
We're nowhere near pricing in a real possibility of a no-deal Brexit outcome. However, the moment the market starts moving towards that, the pound's misery in August will look very much like a papercut in the grand scheme of things.
GBP performance vs major currency bloc in August
