The Pound has continued its rise today, continuing its staggering rally from the start of this year.
Today’s move is not down to any specific data and is just a continuation of its recent trend higher following increased optimism that the UK can achieve better terms for departing the EU. A so-called ’softer’ Brexit is likely to support UK growth and lead to quicker rates hikes from the Bank of England.
The UK economy has continued to perform fairly robustly since voting to leave the EU, which has surprised many investors who forecast a more significant downturn. Granted… we haven’t actually left the EU yet, so the full ramifications are still unknown, but with hopes of a transition deal and a seemingly more conciliatory EU, traders are feeling more upbeat about the UK’s outlook. Markets can be notoriously fickle though, and full trade negotiations are yet to properly kick off, so there could be a reality-check at some point for Pound bulls… tread carefully.
In other news, the USD continues to be up against the ropes as concerns have increased that Trump’s protectionist agenda will likely lead to further USD devaluation. The USD has already been heavily under fire over the past 12-mths, as other World economies have started to perform much better and look to start their own monetary policy tightening campaigns. This has increased risk appetite and caused a shift in flows out of the Dollar/US and into other major regions, with traders seeking higher yields and more balanced portfolios.
As a result, the GBP/USD has up nearly 1.8% this week and now trades at fresh highs since the Brexit referendum result (June 2016). The GBP/EUR has whipped about 1-cent higher since yesterday’s low and now trades around a 6-week high and not far off a 7-mth high.
Next up we have a key ECB interest rate meeting tomorrow afternoon. They’re not expected to change anything but the market will closely scrutinise their comments for better clues for future policy action.