Thu, 11/01/2018 - 09:48
The British Pound jumped higher against other major currencies on Thursday on reports that embattled Prime Minister Theresa May has secured her first major Brexit deal. This follows months of uncertainty that has sent Sterling on a rollercoaster ride – making it extremely volatile for investors.
According to the Times newspaper, UK and EU negotiators have agreed that British financial services companies will continue to have access to European markets after Brexit. Government sources claimed that an accord had been reached on all aspects of a future partnership, including the exchange of data.
The news will be a welcome boost to Mrs May, who is still facing a potential rebellion from hard-line Eurosceptics within her Conservative party. She could also struggle getting her Brexit plans through Parliament, assuming a deal is completed with the EU in the first place. Currently, there is still no guarantee on that, with ‘no-deal’ preparations said to be continuing.
Sterling was currently 0.97% higher against the USD as of 09:30 GMT at 1.2889. It was also performing better than the Euro and Japanese Yen, increasing by 0.39% and 1.01% respectively.
Investors’ attention will now turn to the Bank of England’s (BoE) monetary policy statement later on Thursday. Britain’s central bank is widely expected to hold steady on interest rates, while leaving plans to raise borrowing costs in “suspended animation.”
Analysts do not expect any activity from the bank until at least May, after the UK has left the economic bloc. Of course, it may have to intervene earlier if Britain crashes out without a deal. Traders have been warned that they cannot expect the BoE to rescue the Pound at the moment, as it has been clear the outlook for the British economy is intrinsically linked to a successful Brexit.
Meanwhile, a poll by Reuters expects Sterling to jump by 5.5% versus the Greenback if a divorce deal is reached. Economists believed the Pound would rise to $1.35 if negotiations prove fruitful, with three-quarters of those polled predicting an agreement will be made.
It was not all good news, however, as the same poll predicted Sterling would slide by more than 6% if the UK crashes out without a deal. In this scenario, the Pound is expected to tumble down to around $1.20.