Pound Strengthens On UK’s Plan To Postpone Brexit

Pound Strengthens On UK’s Plan To Postpone Brexit
January 14, 2019

 

The Pound Sterling soared to its highest mark in 2018, compared to the euro, and to levels not seen since November, against the dollar because of the news that the government is looking at the possibility of postponing the date of the UK’s exit from the EU after the 29th of March. Additionally, improved construction output and GDP data permitted the Pound to gain ground against its peers, including the US dollar.

 

Brexit delay, better-than-anticipated economic data propel the Pound

London’s Evening Standard reported that “a backlog of at least six essential Bills that must be passed before Britain leaves the European Union has left ministers convinced the timetable will be extended.”

Any postponement of Brexit is actually positive for the British Pound because it minimizes the chances of a worst-case scenario of the currency in the form of a ‘highly disruptive no- deal’ Brexit. The postponement does not imply that a ‘no deal’ Brexit is off the table, but at least the probability of a ‘disruptive no-deal’ has decreased, and this is good overall for the Pound.

A senior minister told London’s Evening Standard: “The legislative timetable is now very very tight indeed. Certainly, if there was a defeat on Tuesday and it took some time before it got resolved, it’s hard to see how we can get all the legislation through by March 29.”

In a note to clients, Fawad Razaqzada, an analyst with Forex.com, wrote “The Pound has risen on the back of a report from the Evening Standard, which suggested that a Brexit delay beyond March 29 looks increasingly likely, citing Cabinet ministers on the matter. The pound’s positive reaction suggests investors are betting that the potential delay in the official exit date means the chance for a no-deal outcome would decrease.”

Meanwhile, the ONS reported that the UK economic growth substantially improved for the second consecutive month in November, driven by construction and services growth, and surpassed the expectations of economists.

The gross domestic product (GDP) growth increased to 0.2% m-o-m in November, from 0.1% in the previous month, according to the estimates of the ONS. On a m-o-m basis, services output increased by 0.3%, following an increase of 0.2% in October. Economists forecast a gain of 0.1%.

In November, construction output increased by 0.6% on a month-on-month basis, twice the 0.3% growth anticipated by economists. On an annualized basis, construction output rose by 2.1% from September to November 2018.

Sarah McMonagle, Director of External Affairs at the FMB, commented as follows on the construction output figures: “The UK construction sector grew by 2.1% during September to November 2018 compared with the previous three months. This is despite unparalleled levels of political uncertainty around the very real prospect of a ‘no deal’ scenario.”

Retail sales were the main engine of growth, fueled by Black Friday promotions. However, it was partly offset by a small contraction in legal and accounting activities, the ONS said. The statistical organization further noted that services were the most significant contributor to GDP growth in the quarter ended November 2018.

On the overall economic scenario, ONS Head of National Accounts, Rob Kent-Smith said: “Growth in the UK economy continued to slow in the three months to November 2018 after performing more strongly through the middle of the year.”

Any kind of economic data has little effect on the currency in the current environment in which developments related to Brexit decide the direction of the movement of Pound. As of now, the Pound may see a relief rally because of the positive news related to Brexit.

Technically, the GBP/USD pair is moving within an ascending channel as shown in the image below. Furthermore, the stochastic oscillator is in the bullish region. The currency pair is also trading above its 50-day moving average. As a result, we can expect the GBP/USD pair to move up in the short-term.

gbp - 14th January 2019

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.

Janine

Janine

Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be


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