Pound Sterling Higher as 'Bad Brexit' in the Price, FX Traders Digest News of May’s Brexit Push
Pound Sterling was seen moving higher at the start of the new week as London markets took the reins from Asia.
Traders bid for Sterling in an extension of a theme that began the previous Friday.
The Pound was the best-performing G10 currency last week, largely thanks to the impressive rebound seen on Friday with traders taking a view that E.U. and U.K. brexit negotiators were still on target for a transitional trading deal to be agreed by year-end.
Chief E.U. brexit negotiator Michel Barnier said as much when he addressed press on Thursday, October 12 following the conclusion of the fifth round of brexit negotiations. For some inexplicable reason markets missed this significant hint and rather chose to focus on his mention of deadlock over the issue of the settlement bill.
"GBP recovered and ended the week stronger after a report signalled that EU might offer UK a two-year transitional Brexit deal," says Marit Øwre-Johnsen at DNB Bank ASA.
Friday saw media reports back Barnier’s view that a deal on progressing beyond the first round of talks was likely within the next two months, this focussed trader minds on the point that the two sides are actually closer together than had been assumed.
The Pound-to-Euro exchange rate trades at 1.1286 having been as low as 1.1072 in the previous week, the Pound-to-Dollar exchange rate is seen at 1.3300 having been as low 1.3052 in the previous week.
A readjustment of sentiment towards Sterling pertaining to Brexit negotiations could play out further we are told.
“The market also has very low expectations for any Brexit progress at this week’s EU Leaders Summit. EU Leaders are not expected to judge that sufficient progress has been made to move on talks over the future relationship with the UK. With expectations already very low, the balance of risks for the pound could be more titled to the upside ahead of the Summit,” says Lee Hardman, currency analyst with MUFG in London.
In short, news on Brexit would have to deteriorate significantly were Sterling to make a sustained push lower.
“Deadlock talks, contingency planning around a 'no deal' scenario and talk of a transition deal shouldn't be new news and we think short-term - as well as broader - political risks are fairly priced into GBP for now. Therefore we expect to see little fallout in GBP when EU leaders this week conclude that there has been little progress in talks thus far,” says analyst Viraj Patel with ING Bank N.V.
May's Big Push
Monday brings fresh impetus to Brexit negotiations with news of an unscheduled attempt by Prime Minister Theresa May to push talks forward with a trip to Brussels being made on Monday; however Downing Street say the meeting was in “the diary for weeks”.
Regardless, markets like the idea that the UK Government are working hard to push talks forward ahead of Friday’s EU summit.
May will be meeting Barnier and European Commission boss Jean-Claude Juncker over dinner and will be joined by Secretary of State for Exiting the European Union, David Davis.
Furthermore, it has been revealed that May held discussions with German Chancellor Angela Merkel on Sunday night where both sides agreed on the importance of pushing talks forward in a “constructive” manner.
We reckon markets will like signs that both sides are active in pushing towards an agreement; this should allow traders to focus on the key data releases of the week: inflation, wages and retail sales due on Tuesday, Wednesday and Thursday respectively.
For further insights on these events, please see here.
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