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Sterling soaring on potential Brexit deal

Published: Thursday 11 October 2018

  • Sterling soaring on potential Brexit deal
  • Aussie, Kiwi and Canadian Dollars all weaker as commodities ease
  • Euro suffering as Italy ignores EU rules

​​By David Johnson

Michel Barnier is once again telling the UK what they can’t have, without any real idea of what he thinks they can have. It’s such a hackneyed line that the Pound mostly ignored it. Yesterday’s confirmation of 0.7% UK economic growth between June and August was welcome relief and the Pound reacted well to that. We had overnight news that the Royal Institution of Chartered Surveyors (RICS) survey showed a minus two reading; indicating a decline in house prices – and that too was overlooked, as traders watch the preparations for next week’s round of Brexit negotiations and some even think a deal could be struck on Monday. The Sterling - Euro exchange rate, which has been advancing since around 21st September, looks set to continue on its run if that rumour persists. And goodness knows how high it could jump if they are proven to be true. 

Keep an eye on the words, not the numbers
Of course, the other side of the GBPEUR rate is the Euro and that is under pressure as Italy’s disregard for the EU’s budget rules continues to cause consternation. This morning brings the minutes from the last European Central Bank (ECB) meeting and analysts will be looking for any discrepancy between Mario Draghi’s post-meeting press conference and the conversation that took place in the meeting. Whether and when the ECB will start to look at interest rate hikes is the key to the Euro’s path. Other than the European Central Bank’s meeting minutes, we have little other than the Italian disagreement and Brexit available to move the Euro. So watch the words not the numbers, seems to be the plan. 

Sterling soaring upwards…
The Sterling – US Dollar rate has also been on an upward trajectory for the last few months, but seems trapped below $1.3250 or thereabouts. This afternoon’s US inflation and weekly Jobless Claims number could have an impact, but the bigger issues of trade wars and the President’s ‘shoot from the hip’ policy making is the ever-present unknown.

Sterling’s rise has been very marked against the commodity related currencies, like the Australian and New Zealand Dollars and the Canadian Dollar, for example. The Sterling – NZD rate is above the psychologically significant NZD 2.00 to the Pound. The Sterling – Rand rate is flirting with a push to ZAR 20.00 to the Pound and that would be the first foray into this area for two years. 

Off to see a man about a hat?
Anyway, you haven’t got time for this; you probably need to get out there to the milliners to sort your hat for Princess Eugenie’s wedding. I’ll let you get on to that. 

Dear Mr. Tax Man…
A letter received at the HMRC income tax office read, “I find I can’t sleep because I know I was not entirely honest on last year’s tax return and I understated my true earnings.  I enclose a cheque for £500. If I find I still can’t sleep, I may have to send some more.”
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