Sterling rallies even further yesterday with more positive Brexit News

6 November, 2018

Annabel Gorrie

Sterling rallied further yesterday on reports that Britain was nearing a deal for leaving the EU and that an all-UK customs arrangement would be part of it. With talks still taking place just 5 months before Britain exits the EU, investors are growing anxious and sterling is moving sharply on any news of a possible breakthrough. The Irish border has been the main unresolved issue haltering a Brexit deal however with an all-UK customs deal written into a legally binding agreement governing Britain’s withdrawal from the EU there would be no need for a hard border with Ireland.

Should the UK have a smooth exit from the EU the Bank of England has indicated that more interest rate hikes could be on the way which could be a further boost to the Pound. Morten Helt, the Senior Analyst at Danske Bank, believes EUR/GBP could retreat to the 0.8300 region in a 3-month horizon should a Brexit deal be reached.

Brexit will remain key driver and source of volatility for GBP until a deal is reached. So whilst it looks once again like a Brexit deal is now imminent we have heard this before and know how quickly things can change. Any unfavourable news at this stage could bring a sharp downward trend in the GBP as we have seen for 7 months out of 10 so far this year, losing as much as 3.6% so consider buying your Euros now to mitigate any risks.

Services PMI data for the UK was down yesterday morning (down to 52.2 from 53.9 in October) but this had little effect on the Pound’s strength, with Brexit being the main driver for any movement in the Pound at this stage.

In other news, we have the US Mid-Term Elections taking place today, two years after Donald Trump was elected. This time they’re choosing new members of Congress, but how they vote could affect how the rest of Trump’s presidency turns out. What does this mean for the Currency Market? We are likely to see a swing in the USD.

If you believe opinion polls, they say Democrats are ahead in many places. Many voters are angry with Trump and will vote for the Democrats. Frustration about his style, immigration policy, and also about higher prices that are an outcome of the tariffs fuel anger. In the more likely case that the Democrats win the House, the US Dollar will likely drop, but as this scenario is mostly priced, the reaction will be relatively muted.