FX focus: Pound hits three-year low against the euro

The pound began the week on the back foot on Monday (15 August), falling to a three-year low against the euro after having dropped below $1.29 for the first time in a month overnight. As of mid-afternoon, the pound was 0.26% lower against both currencies, exchanging hands at $1.2886 and €1.1534 respectively.

"The pound failed to close above the $1.30 mark and this is a matter of concern for traders as this increases the odds that the currency's value may continue to drop," said Naeem Aslam, chief market analyst at Think Markets UK.

"Unless the negotiation team can carve up some meaningful progress with their EU partners, it is difficult to see the sentiment changing anytime soon among investors."

Elsewhere, the dollar lost ground against both the euro and the yen, falling 0.11 against the former to 0.8947 euro cents and 0.16% against the latter to ¥101.14.

Kit Juckes, head of FX at Societe Generale, said there could be major movements on the way for currency markets later this week, when investors will analyse inflation data for the Eurozone and the US.

"The odds of a 2016 rate hike have eased back to 42% as we await the next round of US housing and inflation data and the Federal Open Market Committee minutes for the last meeting," he added. "The FX market is likely to bounce around with the data but for now, it's in a sweet spot –fading fear of a Fed hike, and every reason in the world to look for higher yields elsewhere."