Pound Rallies As Negotiators Move Closer To Brexit Deal

Pound Rallies As Negotiators Move Closer To Brexit Deal
October 10, 2018

 

The sterling gained against the greenback and recorded a three and a half month high against the euro yesterday after Dow Jones disclosed that the UK and European Union were moving forward in Brexit talks and exit terms could be established next week. The sterling also gained ground against the euro in recent weeks, partly as worries about the ongoing tussle between Brussels and Rome over Italy’s planned budget deficit targets have amplified the euro’s woes in recent sessions.

The British pound has consolidated around $1.3160 after earlier declining nearly 0.4% to $1.3034. Against the euro, the Pound turned around to cover previous losses to trade at about 88.05 pence.

 

The Brexit deal

European Union negotiators have revealed that an agreement with Britain was “very close.” Specifically, European Commission President, Jean-Claude Juncker, has stated that a deal would be inked by November at the latest.

The potential impact of Brexit deal on the Pound was stated by Viraj Patel, an FX strategist at ING in London.

“The pound can definitely move higher from current levels but the markets are waiting for news on a substantial breakthrough in Brexit negotiations and until that materializes, we are trapped in a range.”

While major hedge funds have been accumulating the pound in the past few days, total short positions on the Pound are near their peak levels in 16 months, according to the CFTC futures data.

Mike Amey, head of sterling portfolios at fund management giant PIMCO, revealed that he has a long position on sterling versus the euro, foreseeing a progressive climb over the next 12-18 months, since the market was “too pessimistic” about chances for a disorderly Brexit.  The likely Brexit deal was greeted by Japan, which sees the possibility of the UK entering the Trans-Pacific Partnership trading bloc after Brexit.

Japan’s Prime Minister, Shinzo Abe, has stated that the United Kingdom would be invited into the Trans-Pacific Partnership trade deal with “open arms” after it exits the EU.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also known as TPP11 or TPP-11, is a trade contract connecting 11 nations, including Japan, Canada, Australia, and Malaysia. TPP-11 is the amended version of TPP which initially included the US. However, it had to be discarded after Donald Trump unilaterally announced an exit from the prevailing bloc trade deal.

Despite the news of a possible Brexit deal, some analysts are still pessimistic. Fiona Cincotta, a senior market analyst at City Index, is of the opinion that parliamentary opposition is still a key hurdle towards a deal.

Fiona Cincotta said “Despite a rallying party conference speech last week PM Theresa May has not been able to do much to unite her own ranks and there is still a high number of MPs likely to vote against any deal. The pound is holding up surprisingly well given the amount of uncertainty, feeding off the volatility in the US and European bond markets.”

While there are lingering concerns, the statement made by the European negotiators is expected to keep the Pound strong in the days ahead.

Technically, the GBPUSD pair is moving along an ascending channel as shown in the image below. Additionally, the accumulation/distribution indicator is making new highs. As a result, we can expect the currency pair to move up in the short-term.

gbp - technical analysis - 10th October 2018

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.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins


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