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Traders who have placed bullish bets on the pound may find their nerves tested this week, with sterling likely to buffeted by everything from Brexit to the Bank of England.
Sterling posted its biggest weekly gain versus the dollar since June last week, benefiting from a falling dollar after dovish comments from Federal Reserve officials and ongoing tensions with North Korea. This week it faces a vote on the UK’s Brexit bill in Parliament on Monday, inflation data on Tuesday and the Bank of England rate decision on September 14.
As the opposition Labour Party hopes to block the bill aimed at transferring European Union legislation into UK law, Prime Minister Theresa May will be relying on the Democratic Unionists and the loyalty of her own party to get it through. Seven of her Conservative Party lawmakers would have to vote against it for the bill to fail.
“A delay will likely weigh on the pound,” said ABN Amro Bank NV analyst Georgette Boele. “A soft Brexit would be positive but the prospect of no deal at all is worse.”
The pound has proven fairly immune to poor data in recent weeks, meaning the inflation figures and an unemployment report on September 13 are not at the top of traders’ agendas. Still, there is the possibility of more upside, said Boele.
“If inflation numbers come in above expectations and the job report is in line with consensus, sterling should continue to outperform the dollar and should also recover somewhat versus the euro,” she said.
The pound broke above $1.32 (Dh4.84) to a five-week high against the dollar on Friday, gaining nearly 2 per cent on the week. Against the euro it rose to a two-week high at 91.10 pence per euro.
With the BOE not seen hiking rates at this week’s meeting, investors will be watching the tone of the statement for further direction, said BMO Capital Markets strategist Stephen Gallo. New member David Ramsden, who joined the central bank’s policy committee on September 4, is expected to toe the dovish line and vote against a rate hike, according to analysts. Despite a full agenda on the UK side, the real story this week will be continued dollar weakness, Gallo said.
“I would characterise cable as reluctant appreciation,” said Gallo. “The fundamentals haven’t changed.”
Pakistan’s rupee weakened sharply against the dollar on Tuesday in what appeared to be a currency devaluation by the central bank, traders said, the second such intervention in less than four months.
As Brexit talks enter a crucial phase this week, pound traders are cautiously awaiting signs of progress toward a transition deal. Even if those expectations are met, any gains in the currency may be
As Brexit talks enter a crucial phase this week, pound traders are cautiously awaiting signs of progress towards a transition deal. Even if those expectations are met, any gains in the currency may b
Investors in short-dated sterling bonds could be the main winners if Britain and the European Union fail to hammer out the contours of a Brexit transition deal at a summit starting on March 22.
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