The euro and pound were little changed against each other and higher against the dollar in early trading in Europe Thursday after the European Union agreed to push back the U.K.’s departure date as far as Oct. 31.
The decision essentially leaves the pound in limbo, with the possibility of a no-deal Brexit still very much alive, and the prospect of a chaotic campaign for European elections to come. As such, it’s unlikely to end the uncertainty that has depressed both business and consumer sentiment in recent weeks. The U.K. will be forced out of the EU on June 1st if it fails to take part in those elections.
It’s “the worst of all worlds,” said Helen Thomas, CEO and founder of the consultancy Blonde Money. She said it “removes the time pressure to force a decision but doesn’t quite provide enough time for air to clear through a general election or a second referendum.”
“This is not positive for the U.K. economy, or for U.K. assets in the long run,” Thomas added.
One of the reasons the dollar hasn’t gained against either sterling or the euro is the first explicit admission from the Federal Reserve that the next move in U.S. interest rates may be down rather than up. The minutes of the Fed’s last policy meeting, released Wednesday, said various Fed officials thought that the appropriate level for rates could “shift in either direction”.
But the euro too is under the influence of dovish central bank comments. European Central Bank President Mario Draghi again stressed at his regular press conference that the ECB would do everything it can to get inflation back up to its target level, and didn’t steer against the perception that recent talk of ‘tiering’ the penalty rate on excess deposits at the ECB is a preliminary step to cutting rates later this year.
The dollar index, which measures the greenback against a basket of six major currencies, hit its lowest level in two weeks after the release, but recovered slightly to trade at 96.530 as of 04:10 AM ET.