As trading hits midweek, the pound has begun to rise off the back of a major sell-off which was witnessed on Monday. The sell-off came after headlines arose over the weekend that highlighted UK Prime Minister Boris Johnson would settle for an Australia-style trade deal if he was unable to secure a free-trade deal like that of Canada’s arrangement with the EU. The difference between the two types of deals is significant as the Canadian deal would favour GBP much more than the Australian-type deal. However, as the pound sterling begins to steadily climb up once more against the euro and USD, some analysts believe that the sterling’s sell-off was exaggerated and unjustified. Whilst others note that a renewed focus on Brexit will likely limit GBP’s gains in the short-term.
Pound Recovers Against Euro After Major Sell-Off Earlier This Week
Pound sterling has started its recovery against the euro and some of its major rival currencies as mid-week trading arrives. Monday saw a large sell-off for GBP which was prompted by the type of deal that Britain could end up with following the EU-UK negotiations. The UK is gunning for a Canadian-style deal which would guarantee that up to 98% of good traded are not subject to tariffs. But failing this, Boris Johnson noted that the UK may settle with an Australian-type deal which would fare badly for the UK as the deal Australia has with the EU is relatively poor, so much so that the two have committed to another round of negotiations in an attempt to break down barriers. Because of this, the support for the pound dropped as investors worried that the UK could be overshooting with their Canadian-style deal which might land them in a worse position or even without a deal at all. The possibility of a no-deal Brexit once again filled the airwaves, and this helped to depreciate GBP.
GBP’s Monday Sell-Off May Be Overexaggerated as Pound Recovers Mid-Week
As GBP recovers mid-week, a general feeling of over exaggeration has surrounded Monday’s sell-off. The economic figures being returned by the UK economy has grabbed investors attention, as the UK’s growth appears to be heading in an upward direction. Both of this week’s data releases in the construction PMI and services PMI beat predictions, suggesting that UK business is growing. This has led many to wonder if the sell-off witnessed at the start of the week was overdone and possible unjustified. But Brexit remains a large hurdle for GBP to overcome. With Boris Johnson’s ambitious agenda to achieve a Canadian-style trade agreement, many investors are worried that the UK could be overshooting and may end up with a lesser or no deal as the negotiations conclude in December. Brexit is likely to limit the pound’s gains but for now the UK’s economic figures are providing some positive support for GBP.
If you have an upcoming currency transfer and would like to plan around Brexit, feel free to contact me directly, Tom Holian, Using the form below. I look forward to hearing from you.