Pound in a strong start to the week
5 March, 2019
Last week we saw the GBPEUR exchange rate soar to a 21-month high as Theresa May emphasised her confidence that a no-deal Brexit can be avoided, promising MP’s a vote on delaying Brexit if her deal is rejected. This rising optimism and expectation that Brexit will be delayed boosted GBP across the board, leading to 7 months high on the GBPUSD pair.
The release of the UK’s latest construction PMI yesterday was the lowest in 11 months. We saw the construction sector unexpectedly contract in February, largely due to Brexit uncertainty, which halted the GBP from making any further gains yesterday.
The GBP remains under the microscope this week. We are imprisoned in Brexit darkness as we wait for MP’s to have a fresh vote on the Brexit deal. May has promised the meaningful vote will take place sometime before the 12th March, a week from today. It’s widely believed that the chances of a vote this week are negligible, most likely it will be next week. Today we have Attorney General Geoffrey Cox, Theresa May’s top lawyer meeting EU Brexit negotiator Michel Barnier in Brussels in order to try and clinch a deal and negotiate the issue of the Irish backstop.
Whilst May is confident that a no deal Brexit can be avoided, it is worth noting that such a no-deal scenario could lead to a significant depreciation of GBP. Citibank sites this could be as much as 5-10%. Given we are less than 4 weeks away from the official leave date it does look highly probable we will be looking at an extension to this date, and whilst in the short term this has boosted the GBP, in the long term it would cause more uncertainty for the market, leaving people on the edge of their seats simply not knowing what’s going on still. So whilst we are experiencing these highs there is a lot to indicate they will not be sustained. Taking advantage of the rates now would be prudent as Brexit uncertainty will remain the biggest challenge for the UK for quite some time.