Barnier’s Optimistic Comments On Brexit Deal Lifts Pound

Barnier’s Optimistic Comments On Brexit Deal Lifts Pound
September 11, 2018

 

The sterling rallied against the greenback and euro yesterday after Michel Barnier, the European Union’s chief negotiator, stated a Brexit deal might be possible “within six or eight weeks” if the UK negotiators become realistic in their demands. Notably, this is the second time Barnier has expressed his interest in taking the negotiations forward. The UK only has seven months (March the 29th, 2019) left to leave the European Union.

 

Brexit hope & strong GDP data

While speaking to a Slovenian forum, Barnier stated that: “if we are realistic, we are able to reach an agreement on the first stage of the negotiation, which is the Brexit treaty, within six or eight weeks.”

For the currency market, which is broadly bearish on the Pound because of concerns that Britain will exit the EU in 2019 without any type of trade-related agreement in place, Barnier’s comments were taken as a signal that the UK may manage to avoid a crash exit.

Following Barnier’s statement, the pound rallied against currencies of all the developed economies, and in particular, rose 1% against the greenback to trade at about 1.3040 – the highest level in the past five weeks.

GBP - technical analysis - 11th September 2018

Commenting on the rally, Viraj Patel, a currency analyst at ING in London, said: “It just shows that’s the key thing that people want to see — Brexit progress. You have a market that’s heavily short on sterling due to Brexit. It needs that tail risk to be taken off before sterling can rally.”

Diplomats have, furthermore, revealed that the EU leaders will conduct a special Brexit summit sometime in November. The officials are hopeful of signing a detailed divorce deal with Britain at that time.

The pound also got a boost from the robust GDP data reported by the Office for National Statistics. The UK’s GDP (gross domestic product) rose 0.6% in the quarter that ended July, the fastest rise since August last year. The GDP growth rate was faster than the anticipated 0.5% and 0.4% reported in 2Q18.

On a monthly basis, the GDP increased by 0.3% m-o-m in July, compared with 0.1% growth in the earlier month.

The economic data published by the ONS indicates a continuing recovery in the construction sector following a weak start to 2018. In July, the construction output rose 3.3% on a m-o-m basis.

Commenting on the GDP and construction data, head of GDP Rob Kent-Smith said: “Services grew particularly strongly, with retail sales performing well, boosted by warm weather and the World Cup. The construction sector also bounced back after a weak start to the year.”

According to the ONS, the UK’s trade deficit narrowed to £9.97 billion in July, from £10.68 billion in July which is the lowest recorded trade deficit in the past five months. During the same period, the services recorded a surplus of £9.80 billion, an increase from £9.70 billion a month before. Overall, the total trade deficit contracted to £111 million in July, from £942 million in June.

The UK’s visible trade deficit narrowed to a 5-month low in July according to the ONS data. The deficit on trade in goods fell to GBP 9.97 billion from GBP 10.68 billion in June, and at the same time, the surplus on services increased to GBP 9.8 billion from GBP 9.7 billion a month ago. As a result, the total trade showed a negative balance of GBP 111 million compared to -GBP 942 million in June. Therefore, hopes of a transitional Brexit deal and strong GDP data is expected to keep the Pound strong.

Technically, the historical price chart provided above indicates that the GBPUSD pair is moving within an ascending channel. The stochastic indicator is in the bullish zone. A continuation of the current rally can, therefore, be expected.

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


Related Articles

Canadian Dollar Turns Bullish On 25bps Rate Hike By BoC

  The Bank of Canada raised interest rates for the third time in a year, yesterday. The market, however, did

Greece is (sort of) Fixed…

  Greece is fixed. At least that was the feeling after a marathon meeting on Sunday. Eurozone leaders worked until

Aussie Strengthens on Impressive Unemployment Change Data

  Last week, the US Fed’s statement pointing out the possibility of three rate hikes next year strengthened the US