Brexit rumours boost Sterling

Last week was a perfect example of how sensitive Sterling markets are to any developments with Brexit, be it fact or simple rumour. The week began with the Pound dropping lower for 2 days as the fear of a prolonged negotiation with an increased chance of no deal continued to weigh on Sterling exchange rates. At the mid-point of the week however traders took the chance to put money on the table that a deal will in-fact be reached, and perhaps sooner than initially feared. Dominic Raab was quoted to have said to the EU Commission that a deal could be agreed by 21st November, only to then come out hours after the breaking news to dampen this expectation and timeframe. Overnight however further news broke that a ‘tentative’ deal was in place to ensure that UK financial services still have market access after Brexit, a big plus for the currency markets in particular and rates rallied 2% in little over 24hrs.

GBP/EUR and GBP/USD rates now sit at the best buying levels for around 2 weeks, with GBP/EUR very near to the peak buying rates of the last 6 months. Whilst these gains are very welcome for most, it is important to recognise that the rise is purely speculation at this stage and as such continued gains are very unlikely without confirmation of these rumours, and a very real risk of the gains being quickly eroded remains, just as we have seen on a few occasions in the past couple of months when rumours have been proved to be just that. If the markets have shown one thing in the last couple months, it is that spikes and peak buying levels should be seen as opportunities to fix your currency with rates actually moving sideways within a wider range until more clarity is provided on any Brexit deal.

Friday saw some profit taking from these gains, and of course the big unemployment announcement for the US. After a terrible figure of 118k last month, analysts were optimistic of an improvement and the results did not disappoint with a strong figure of 250k, helping the greenback to recover around half a cent against both the Pound and Euro.

The week ahead is quite for UK data until Friday, so markets will be keeping their ears peeled for any further updates on recent Brexit rumours. Elsewhere we have 3 interest rate decisions this week from the US, Australia and New Zealand. A list of the week’s key data releases to watch out for are as below:

Tuesday:
03:30am (AUD) – RBA interest rate decision and statement
09:45pm (NZD) – New Zealand unemployment rate

Wednesday:
10:00am (EUR) – Euro-zone Retail Sales
08:00pm (NZD) – RBNZ interest rate decision and statement

Thursday:
07:00pm (USD) – FED interest rate decision and statement

Friday:
09:30am (GBP) – Gross Domestic Product / Industrial and Manufacturing Production