The pound has been given a major boost following the agreement on the transitional deal which was agreed yesterday by Brexit secretary David Davis and his EU counterpart Michel Barnier. GBP EUR rates broke through 1.14 before retreating slightly whilst GBP USD remains above 1.40 for the pair. Britain will effectively be able to access the single market but without being able to be involved in the rule making.
The gains are already proving somewhat limited however and there has been a political backlash from a number of politicians due to the ground that Britain has had to give to the EU to accomplish this agreement. Particular focus has been made with regards fisheries and also on migration and there may be more to follow in this story particularly if politicians seek to vote down any agreement.
Whilst there has been a degree of certainty offered for businesses there is still a long way to go in the Brexit negotiations with the subject of future trade expected to commence later this month. The issue of the Irish border is perhaps the biggest stumbling block and if this is not resolved there is still the risk of a no deal scenario. This is one of the reasons why the pound is failing to see gains beyond the recent spikes we have seen this year.
Inflation data released this morning will be hugely important for the Bank of England which will hold a meeting on interest rates later this week. Inflation is expected to fall this morning although anything stronger could see the pound rally. The Bank of England are expected to hold interest rates this Thursday with the next increase anticipated to happen in May. The UK unemployment data released on Wednesday will also be closely monitored as they contain the ever important wage growth numbers.
The Bank of England have been waiting for wage inflation to progress before raising interest rates further and a jump higher tomorrow could give the central bank a good reason to hike. Any members voting for a hike on Thursday could also see the pound rally and could present some good buy opportunities if the data is strong.
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