The Pound had a productive morning, making gains against the majority of major currencies. GBP/EUR exchange rates have hit a high of 1.1361, whilst GBP/USD rates are once again closing in on 1.40. Similar gains have been seen against the commodity based currencies, with the Pound spiking against the AUD, NZD and CAD.
It’s been another volatile week for Sterling, which came under pressure following a poor run of economic data.
The UK’s Unemployment rate rose to 4.4%, which immediately put the Pound under pressure. This negative feeling was intensified following the release of yesterday’s UK Gross Domestic Product (GDP) figures, which showed the UK’s economic growth had been revised down from previous estimates.
This news could well have put Sterling on the back foot heading into the weekend but despite the negative association with these key economic data releases, it is still Brexit sentiment which is the key catalyst, driving the market and ultimately Sterling’s value.
As such, this week’s seemingly positive developments regarding Brexit negotiations have helped curb any further losses.
Leaked Brexit report affects exchange rates
The Pound gained some support early this week following a leaked Brexit report from the EU Parliament. Whilst any leaked report should be taken with a pinch of salt, it seemed to indicate that Brussels was leaning towards giving the UK “privileged” access to the single market, thus softening the upcoming exit.
This positive feeling was backed up yesterday when UK Prime Minister Theresa May held talks with Senior Ministers at her Chequers country estate. A plan has seemingly been devised and hard-line Brexiteers within the Tory Government are likely going to have to accept that we are on course for a much softer Brexit than they has been targeting.
It is likely the UK will agree to the majority of terms laid out by Brussels within the transitional period, which if agreed will run until December 2020.
In return it’s likely the UK will be given special access to the EU markets. However, this potential outcome is still some way off and the EU have been quick to point out the UK’s current stance does not conform with their vision of Brexit.
Negotiations will continue and I expect further volatility over the coming weeks. Due to the uncertainty it is creating in the markets I would avoid risk where feasible and look for any short-term spikes in the market to take advantage of.