Sterling rally running out of steam?

25 January, 2019

Rob Bastin

Thursday’s trading saw the recent Sterling rally slow down after a 4% run in just 2 weeks. With no data out for the UK to react to, traders began taking profits from the recent gains as a cluster of key resistance levels have now been reached for the short term. GBP/EUR tested the same peak hit 2 months ago throughout the day, levels that have not been seen previously since April 2018. GBP/EUR rates failed to make any new gains during the UK session despite a weaker Euro following the ECB rate decision. Whilst rates were held as expected, Mario Draghi commented on some of the recent weaker data for the Euro-zone, and advised that both inflation and growth forecast are to be downgraded. This announcement saw EUR/USD drop to its lowest level of the year so far, but had limited effect on GBP/EUR rates due to the technical ceiling in place.

As the market moved into the overnight Asian session, news broke that the DUP have privately assured the PM that they will back her ‘Plan B’ deal on Tuesday, further increasing the chances of this current deal being re-negotiated and ultimately passed through parliament before the end of March. This catalyst was sufficient for GBP/EUR to break its first resistance level and rally to strongest technical ceiling currently in place, the high of April 2018 at 1.16 on the mid-market. Rates have already sold off half a cent from this 10 month high this morning but still represent an excellent buying opportunity ahead of next week’s vote for those who are slightly more risk adverse.

With no further data due out today, markets will now be preparing for the parliament vote on Tuesday when we will find if Theresa may’s Brexit Plan B has the support of the house or not. This remains an immediate uncertainty and is still therefore a very real risk to Sterling exchange rates from the current levels if the deal is not approved, or even if a winning margin is very small. As end of the month data releases quieten down, the results on Tuesday will be key for exchange rates throughout next week, and potentially for the weeks ahead as we near the Brexit deadline of 29th March. If you have an currency requirement in the coming weeks, make sure you are in close contact with your broker for guidance on the up and coming events.