Sterling charges higher on run of positive Brexit news

Today's news headlines:

  • ‘Pound sterling rises on Brexit hopes as China stocks rally’. The Pound jumped on report of a Brexit financial services deal. (Financial Times)
  • ‘Eurozone inflation rate ticks up to highest level since 2012’. Consumer price growth has accelerated on the back of rising energy prices. (Financial Times)
  • ‘Upbeat ADP Payrolls data buoys Dollar’. US private sector employment increased more than forecast in October, bolstering hopes for a Federal Reserve rate hike in December. (Morningstar)

After a punishing couple of weeks, the Pound, at last, appears to be finding a degree of support, with two key Brexit developments serving to cheer the currency. Yesterday saw Brexit secretary Dominic Raab state that the EU withdrawal agreement could be reached within three weeks, although the response from Brussels was admittedly a little less upbeat. Additionally, a report in The Times published overnight cites that Theresa May has struck a deal which would give UK financial services companies continued access to the EU after Brexit. The combined impact of these events allowed Sterling to recover its last week of losses against the Dollar in a matter of hours; although, it’s likely these heightened levels of volatility will be seen with increased frequency as the finer details of Brexit are unveiled.

The Bank of England’s (BoE) latest verdict over monetary policy due for publication at 12pm GMT today, followed by Governor Mark Carney’s press conference. There are no real expectations that the Bank will make any change to the 0.75% lending rate. However, yesterday’s apparent progress with Brexit could result in some questioning of the Governor as to whether this will pave the way for an acceleration of the next rate hike. Consensus estimates currently put this at least six months out, but anything that suggests policy tightening may happen faster than this could lend a little more support to the Pound. It’s worth adding that this policy statement also coincides with the release of the latest quarterly inflation report, which will provide some fresh clues over just how aggressive the Bank will need to be with rate hikes.

2pm GMT sees the publication of the Institute for Supply Management’s (ISM) Manufacturing print from the US. This metric is acknowledged both as a leading indicator and also one which—during the latter part of a burst of economic growth—can carry some significant weight in terms of market sentiment. Expectations are for a modest decline to be posted today. However, the number is still expected to be in the very high 50’s—and with 50 being break-even—it’s going to take quite an undershoot for this reading alone to knock the Dollar’s current reign.

There’s nothing of note on the Eurozone economic calendar today, with a number of institutions closed to observe All Saints’ Day. This may also serve to keep further Brexit discussions somewhat depressed, and in the short-term, allow the Pound to bask in recent gains.

GBP/USD

The positive stories over Brexit have added one-and-a-half cents to the GBP/USD pair from Wednesday’s lows. There will be no shortage of questions over the deal which has been struck regarding the supply of services by the UK into the EU. However, if this poses questions over the Prime Minister’s role as party leader, the perceived political risk could see these gains being knocked back.

EUR/USD

The Euro lost ground against the Greenback yesterday with that upbeat ADP Payroll reading lending a degree of support. However, the currency has rebounded overnight and the relatively light economic calendar for the day ahead may allow these gains to be sustained.

GBP/EUR

The overnight support for Sterling has been played out against the common currency too, with the pair pushing out to one-week highs. The recent run of positive news for the Pound could now put the Euro back into the spotlight, as questions ranging from the future shape of German politics to the potential stand-off between Rome and Brussels over the Italian budget remain unanswered.