How Brexit, negative rates are impacting currencies

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British pound’s Brexit orbit and do negative rates strengthen currencies?

By Blu Putnam, Chief Economist & Erik Norland, Senior Economist, CME Group

The British Pound, Brexit, and the Pandemic

  • Long-term trend shows British pound is swayed by UK-EU Brexit talks.
  • Pound falls against euro when UK and EU move toward a ‘no-deal’ Brexit.
  • In turn, pound rallies on chances for greater UK integration with the EU.
  • Pound likely to remain within euro’s orbit even after UK leaves EU.
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Impact of Negative Rates on Currencies and Credit Flow

  • Negative interest rates have led to a strengthening of euro, yen.
  • FX markets view negative rates as a tightening of monetary policy.
  • Negative rates are considered by some analysts as a tax on banks.
  • Credit flow could be affected if negative rates hurt banks’ earnings.
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