The exchange rate of the GBP/USD pair is holding around the 1.33 level. Several important economic events are slated for release, including the upcoming European Union summit as well as the CPI (Consumer Price Inflation) data reports. That sterling rallied at the start of the week was due in part to the urgent Brussels trip planned by Brexit Secretary David Davis and UK Prime Minister Theresa May on Monday, 16 October 2017.
The UK team’s meeting with Michel Barnier – the chief EU negotiator – as well as the EC president Jean-Claude Juncker was perceived as an important event for sterling. The impasse in negotiations between the EU and UK fueled uncertainty with the GBP, but the UK’s ‘hands-on’ approach is helping to shore up support for the currency. Currently, there are 3 sticking points holding up an agreement between the UK and the EU, notably:
- The border with Northern Ireland
- Britain’s financial obligations to the EU
- The rights of EU citizens in Britain and the role of the ECJ
Wilkins Financeexpert Archibald Reginald Johnson III remains confident about the UK’s prospects for Brexit, ‘When Prime Minister Theresa May triggered Article 50 of the Lisbon Treaty in April 2017, the official countdown to Britain’s extrication from the EU began. According to the rules, Britain has 2 years to finalize an agreement with the EU, or it risks a separation without agreement. Major European countries like France, Germany, Italy, and Spain are hard at work trying to hammer out an agreement with the UK for a new economic and political relationship with Britain. Sterling appreciated sharply midway through October as Prime Minister May pushes for a negotiated settlement to avoid a bad deal for Britain.’
For the week ending 13 October 2017, the GBP was the strongest performing G10 currency. For currency traders, it’s all about sentiment. Currently, there is increased optimism that the UK and the EU will reach a transitionary agreement on Brexit before the end of 2017. This helped to smooth out volatility with the GBP and helped to restore a semblance of normalcy to the GBP/USD and GBP/EUR currency pairs.
Earlier in October, Michel Barnier, the chief EU negotiator on Brexit stressed that both the UK and the EU were working hard on hammering out a deal, and that the fifth round of negotiations was aimed at agreement and breaking the deadlock. Markets focused on the deadlock and not on the optimism shared between both parties to reach an agreement.
If the European Union offers the UK a transitionary deal on Brexit, this will restore confidence to currency markets and sterling will benefit accordingly. The GBP/EUR exchange rate moved towards 1.1286, while the GBP/USD is holding the line at 1.33. With both currency pairs, sterling was significantly weaker at 1.1072 and 1.3052 respectively. For now, momentum is clearly with sterling and currency traders are going long on the pound.
Low Expectation Translates into Maximum Gain
For sterling traders, it’s all about stabilizing the geopolitical turbulence with the EU. With several rounds of negotiations between the UK and EU now behind us, the momentum is shifting in favour of sterling. So much negative sentiment has permeated currency trading markets that traders are less bullish and more bearish when tidbits of data are released to markets. Any positive movements in Brexit negotiations will drive sterling higher.
For now, the GBP/USD pair and the GBP/EUR pair are value propositions and movement to the upside is expected as we head into the final stretch of 2017. Prime Minister May’s attempts to push through with Brexit negotiations have been in the offing for several weeks, and her direct involvement is seen as a good sign for Brexit proceedings. Active involvement by Prime Minister May and German Chancellor Angela Merkel are viewed positively by markets, and this will help to firm up GBP