Continued Brexit optimism keeps driving Pound
Today's news headlines:
- 'Pound scales seven-month highs as no-deal Brexit fears fall’. Yesterday saw many safe-haven currencies benefit from heightened geopolitical fears, but the Pound gained on increased optimism that a no-deal Brexit will be averted. Implied volatility on GBP/USD also fell to three-month lows. (Reuters)
- 'The Trump-Kim summit in Vietnam has been cut short, no agreement was reached’. The summit was apparently abandoned following North Korean demands to see an end to sanctions before looking at the nuclear agenda. (CNBC)
- 'Emmanuel Macron throws doubt on May’s Brexit delay plan’. France is warning that it may not agree to extend Article 50 unless there’s a new, clear strategy put in place by the UK government. The need for all EU leaders to agree to this condition remains a risk and Macron said he would examine a request for an extension only if it’s justified by new choices on the part of the British. (Financial Times)
If there was any need to reinforce the desire among most politicians to avoid a no-deal Brexit, this was laid bare in Parliament yesterday. Labour’s proposed Brexit deal including a full customs union was defeated, but the cross-party agreement to force the government’s hand over a vote on extending Article 50 was passed by a significant majority. The scale of the victory, a 482-vote majority, underlines the resolve that a no-deal Brexit is seen as unacceptable, and the Pound nudged its way higher as a result.
The US-North Korean summit concluded earlier than expected and without agreement overnight, with neither side willing to make the necessary concessions for progress. Just when the long-running negotiations seemed to be making firm steps forward, this is likely to evoke a cautious tone among markets. Once you consider the rising tensions between Pakistan and India, the geopolitical contribution to markets is entirely downbeat. Risk aversion typically sees safe-haven currencies such as the Yen, US Dollar, and Swiss Franc flourish, so these moves could serve to limit the potential upside for Sterling, even with the rising optimism around Brexit.
The Pound reached highs not seen since early July off the back of yesterday’s Brexit optimism. Global risk aversion may limit gains from here, while the potential for EU leaders to block any extension to Article 50 also carries risk.
The Euro has been trading in a one cent range against the US Dollar for over a week now, with a quiet economic calendar doing little to help. Prospects of an orderly Brexit will provide some support here, although data such as German inflation due this afternoon have the potential to deliver some fresh direction. Anything close to 1.0% could initiate Euro selling.
The Pound moved out to fresh 21-month highs against the Euro yesterday, although the cross is currently around half a cent below that peak. Any plan to delay Brexit could still run into opposition from EU leaders and sentiment appears to be cooling a little.