The UK pound has climbed above $1.40 even with Brexit looming. The sterling rebound has been assisted by general US dollar weakness but GBP has established itself as a strong player against the dollar in the early part of 2018.
Indeed, sterling has in fact risen more than 3% above the dollar and this is due in most part to the weak USD and a better mood among FX analysts as to the UKs Brexit talks.
Sterling broached the $ 1.4002 marker in trading in Asia on Tuesday , but pegged back as the EU trading day progressed to a level of $1.39. The pound v Euro , which is as the best benchmark for Brexit discussions has been relatively stable until recently at a lowish level but in the past 4 days has risen almost 1.5%.
As a result speculative trading bets on the £ are at their top level since July 2014 according to the most recent positioning data by the Commodity Future trading commission.
French president Emmanuel Macron added to the sterling boost this Sunday when he said that the UK could have their “own solution” when the trade agreements were negotiated with the EU members.
This could be seen as progress for the Brexit strategy and a recent analyst report that said the UK had agreed in principle to a transition agreement that would essentially maintain our EU member status privileges on the trading front regardless of actual membership until at the earliest
A currency analyst at MUFG, Lee Hardman said “the report essentially supports the opinion that a Brexit transition agreement could be confirmed quickly to reassure people, businesses and financial institutions and participants.”
Over the last 6 months the best performing G10 currency placed against the $ is the pound £. It has risen over 7.3% during this time period.
IN December 2017 a bounce was expected by currency analysts after the UK made concessions on the EU exit agreement and citizens rights which allowed the EU to let negotiations move on to the next phase.
However sterling remained largely unmoved until the start of 2018, which was when a weakness of the dollar become the market theme. Before the Brexit referendum the pound was trading at $1.50 ,it then dipped under $1.20 on two occasions (Oct 16 and Jan 17) but has recovered back the $1,40 level which shows market confidence in the current Brexit situation.
It will be the market that determines how the potential soft Brexit from the EU will help push the pound higher than $1.40 . which is it’s longstanding ‘floor’ with the dollare since the 1980’s. Another significant factor is how long the US dollar stays stuck in its bearish market pattern. The reserve currency hasn’t managed to find any rally support from sronger US economy data or even tax curs, in addition to higher yields from the treasury, and rising expectations of inflation.
The bank of England broad sterling index has risen by only 2 percent over the last year but the pound has gained over 12% against the dollar but the pounds recent strength against the euro and other currencys highlights potential Brexit optimism with traders. Tomas Flere from UBS said on the matter “ It seems that sterling is becoming ever more resilient, it seems that the markets have got more confident that a Brexit cliff exit in 2019 will not be happening”