Friday marked the major milestone in the Brexit saga for the UK as they departed from the EU at 23:00 GMT. Thursday saw the last EU meeting which included the UK MEP’s who patriotically waved Union Jack flags and sang Auld Lang Syne as the meeting drew to a close. The EU reciprocated through a light display which depicted the colours of the Union Jack in Brussels on Thursday night. As the UK gets one step further to sealing the Brexit deal for good, the market scrambles to identify what could be next for the UK and its interacting exchange rate pairings. GBP and USD have been trading in favour of the upside in recent days after the BoE’s announcement that interest rates will remain at 0.75%. This gave a boost to the GBP and saw it edge over USD. However, analysts warn that GBP’s strength may be limited which could give way to weakness as Brexit unfolds.
UK Departs From the EU and Moves One Step Closer to British Independence
Friday 31st January marked the day that the UK left the European Union. The move meant that the UK will no longer play a role in any further EU meetings and cannot provide input into EU matters from this date on. GBP could turn volatile as the weeks go on and the EU-UK trade agreement issue is attempted to be resolved. Previous showings from GBP as Brexit uncertainties unfolded saw the currency slip as investors panicked at the thought of a ‘no deal’ Brexit. Friday did not mark the end of the Brexit saga and there is still a long way to go for the UK. With the key German industry association, BDI noting that negotiating a trade deal in the given timeframe between the UK and EU would be “impossible” earlier in the week, it left the door open for the chance of a ‘no deal’ Brexit once more which didn’t slip past investors.
GBP Remains Dominant Over the USD as the Week Draws to a Close After BoE Decision, but It Could Be Short-Lived
GBP closed the trading week off on the front-foot as the BoE’s interest rate decision saw confidence and support flood back to GBP. The rate was left unchanged at 0.75% and after many pre-meeting jitters that sent investors running to safe-haven currencies like USD, GBP looks to have regained most of its losses. GBP’s strength meant that it edged over the USD as these ‘temporary’ investors left the US Dollar as the UK’s economic outlook appeared clearer. However, analysts at the Bank of America noted at the end of the week that GBP’s strength may be limited, suggesting that Brexit and upcoming data releases could lead to a downfall in the currency as the path forward for the UK is far from set in stone.
For now the GBP/USD exchange rate favours the GBP on the upside, but investors will be keen to witness the Brexit unfolding’s and any upcoming data releases for both countries which may shift the exchange rate either way.
If you would like to learn more about factors influencing GBP/USD exchange rates for an upcoming currency transfer, feel free to contact myself, Jonathan Watson, using the form below.