The Pound is performing better in 2018 as markets embrace the prospect of a softer Brexit. The withdrawal agreement agreed in December has paved the way for future negotiations and with the UK accepting many EU demands, it appears more likely we will avoid the worst fears of a hard Brexit. It is the changing nature of Brexit which is the main driver on the Pound with Sterling reacting to the headlines.
The beginning of the week saw Sterling struggling a little on comments by Michel Barnier that the UK would be ‘punished’ in the transitional phase by the EU with sanctions. This weakness has however been offset by information from the UK government that they will be seeking some form of softer Brexit, that seeks ‘regulatory harmony’. Boris Johnson gave a speech on Valentines Day which was rather conciliatory in tone, hinting that he would be accepting of more harmony. This is another factor which has helped the Pound this week to gently rise against most currencies.
Economic data has been mixed with Inflation rising but Retail Sales lower, markets are now pricing in the real possibility of an interest rate hike in May which would see the Pound higher but this could already be priced in. What is going to be interesting is next week’s Unemployment and GDP (Gross Domestic Product) data for the UK. As this week has shown the data can come out against expectations which can create unexpected movements.
When considering a Sterling currency exchange it is also important to note the behaviour of the currency pair you are dealing with. For example, against the Australian dollar and Canadian dollar the Pound is at near post-Referendum highs, however against the Euro Sterling is at some of the lower levels of the last 9 years. Sterling rates are benefitting from an improved perception over Brexit but with no concrete news on Brexit expected for some weeks this could quickly change.