Beware of Sterling volatility on BREXIT

23.01.17

For those waiting with baited breath - the big news for Pound Sterling is that Theresa May will make immigration a red line in upcoming Brexit negotiations. According to recent reports, red lines will be an end to free movement from the EU and clearance to hold bilateral trade talks with other countries, which it is thought will not be achievable while the UK is still in the single market. This suggests the that UK is to give up seeking access to the European single market and, for foreign exchange markets, this suggests the British Pound could suffer another bout of selling.

These reports are naturally not confirmed. However, if this does become true the pound could suffer against the US Dollar and also against the Euro. Already, Sterling has been under a little pressure in the last week, moving down to the 1.14 level. Any bounce in the pound would be welcome at this time. Since the turn of the year we have seen some weakness that suggests the markets are looking for a lower Sterling rate.

For sure, the event risk is the biggest threat to the pound, and again that comes in the form of post BREXIT news, and whether, for example the U.K. pushes forward with leaving the single market. Any move up in this market will be an opportunity to sell. We may see a reversal back above 1.15 and that will be a good level to buy currency. It seems at the moment that anything that comes from the Government sends a negative message to Sterling. Until this feeling disappears we definitely could see the currency under pressure.

One saving grace could be the weakness of the US Dollar. The presidential inauguration takes place this week and markets are still really not sure how to perceive the future Trump presidency.

So, another interesting week is upon us.

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