Pound shoots higher as confidence in Brexit builds

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The pound may have been slow out of the starting blocks yesterday, but it ended the day sharply on the rise as the approach of a key level for GBP/USD prompted markets to buy into Sterling.

The pound is largely easing back after yesterday’s optimism. GBP/EUR has slipped to €1.1397, while GBP/USD has weakened to US$1.3957. GBP/AUD is currently bucking the trend, having risen 0.4% to AU$1.7525. GBP/NZD is down slightly at NZ$1.9078, while GBP/CAD is flat at C$1.7412.

After a quiet data calendar, read on to find out what imminent UK and Eurozone releases are likely to cause notable volatility…

What’s been happening?

The pound raced higher against the euro and US dollar yesterday afternoon, picking up the pace after a sluggish morning.

Markets are becoming increasingly confident that a satisfactory trade arrangement will be negotiated with the EU, with data showing that bets on a rise in the pound are at a level not seen since July 2014.

Markets were incentivised to push the pound higher due to the GBP/USD exchange rate’s proximity to the key level of US$1.40 – a rate that was, up until Brexit, a long-term floor for the pairing.

This means that, since the 1980s, the GBP/USD exchange rate has tended to recover from periods of weakness whenever it threatens to fall below US$1.40; markets therefore bought into GBP yesterday in the hopes that it could break, and remain, above this level as the long-term equilibrium returned.

This appetite drove the pound higher versus other currency peers as well, supported by positive results from a PwC survey of UK business leaders.

The report found that 96% of UK businesses forecast increased revenue over the next three years; better than the 91% of business leaders surveyed globally.

A lack of Eurozone data and German Chancellor Angela Merkel’s struggles to form a coalition government weighed on the euro, while the US government shutdown ensured that appetite for USD continued to cool throughout the day.

What’s coming up?

Government borrowing figures for December and orders and selling prices data from the Confederation of British Industry (CBI) for January will give markets plenty to consider today when deciding what positions to take up on the pound.

The euro could also be on volatile form, given that the impactful ZEW survey results from Germany and the Eurozone are due to be published mid-morning.

Confidence could return to the US dollar today after the Senate was able to pass an interim funding bill that gives the government just over a fortnight to negotiate a more permanent spending plan.

There is little of interest on the US data calendar today; Federal Reserve official Charles Evans is due to make a public appearance, he’s already revealed his outlook on monetary policy this week, so there may not be anything new in his speech for markets to react to.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

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