Despite making a decent recovery against most of the major currencies since last Thursday’s major depreciation of Sterling, the Pound is now struggling to push much higher. Sterling exchange rates have received a little bit of a boost following healthy house price data as reported by Halifax but is now hitting resistance at 1.1350 for GBP/EUR, whilst GBP/USD is struggling to break back over 1.32 for this pair.
The negative drop for the Pound after the Bank of England raised interest rates to 0.5% could be described as an overreaction and the Pound appears to now be on steadier ground for the time being.
Brexit negotiations could affect Sterling rates
Brexit discussions will resume tomorrow in Brussels and this will continue to be the single biggest driver for Sterling exchange rates. Any statements from Brexit secretary David Davis or his counterpart Michel Barnier towards the end of the week could have a direct impact on the price of Sterling. Any positive noises surrounding a discussion of a future trade agreement could help see the Pound rally, although in my view this is unlikely to happen at this stage. This element, in my view is likely to drag on until December and probably the New Year before there is even a chance that this discussion will move forward. As such there remains a protracted period of negotiations which is only likely to help keep the pressure on Sterling. The Bank of England’s intervention of raising rates has certainly lifted the Pound but the future direction does now very much depend on Brexit progress.
The next focus will be on Chancellor Philip Hammond’s Budget in two weeks’ time which could see additional volatility for Sterling exchange rates. With Brexit in the background this could be a particularly tough budget for the Chancellor and any tough decisions he makes could have a direct impact on the price of the Pound.