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.

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.