Suggestions of progress in Brexit negotiations boost pound

As well as continuing to find support from the prospect of a rate hike from Bank of England (BoE), the pound advanced after officials in the UK and EU indicated they were close to breaking the deadlock in Brexit negotiations.

The pound is on soft form this morning. GBP/EUR is up 0.1% to €1.1414, while GBP/USD is stuck at opening levels of US$1.3291. GBP/AUD has slipped to A$1.7316, while GBP/NZD has fallen by a similar amount to NZ$1.9211. GBP/CAD is holding steady at C$1.7140.

Markets may be focused on the interest rate outlook for the UK, but read on to find out which piece of domestic data could momentarily draw focus away from the Bank of England…

What’s been happening?

Sterling was on positive form yesterday, even though the day started with the GfK consumer confidence survey revealing the expected drop from -9 to -10 in the sentiment index.

Markets were still hopeful ahead of tomorrow’s monetary policy meeting, which could see the Bank of England elect to hike interest rates back up to pre-referendum levels of 0.50%.

Also fuelling appetite for the pound were suggestions from Prime Minister Theresa May that a deal was close to being reached on the rights of EU citizens currently living in the UK, and comments from EU negotiator Michel Barnier that he is willing to speed up negotiations.

The GBP/EUR exchange rate also received a boost from poor Eurozone inflation data. Markets largely ignored above-forecast French and Eurozone GDP figures from the third-quarter, despite the best growth rate in six years, or the first drop below 9% for unemployment since 2009.

Instead, markets were concerned by the drop from 1.1% to 0.9% for core inflation and from 1.5% to 1.4% for overall price growth. This could make the European Central Bank (ECB) think twice about its recent quantitative easing taper.

Even above-forecast consumer confidence figures from the US couldn’t stop the GBP/USD pairing from recording solid gains. A greater-than-expected leap from 120.6 to 125.9 revealed that household sentiment is at a 17-year high, bolstering the chances of a December interest rate hike from the Federal Reserve.

What's coming up?

The UK Markit manufacturing PMI for October is set for release this morning, and could distract from the approaching interest rate decision.

It will be the first glimpse into how UK industry fared at the beginning of 2017’s final quarter. The manufacturing index is often seen as setting the trend for the construction and services results to follow, so weakness here would have markets braced for further bad news over the coming days when the other indices are released.

There is nothing on the Eurozone calendar for today, but the US economic docket is very different. Although the impactful ISM manufacturing index is due for release this afternoon, the US dollar could remain on soft form ahead of this evening’s monetary policy meeting.

While markets aren’t expecting the Federal Open Market Committee (FOMC) to change policy in this meeting, they are expecting strong indicators that a rate hike will happen in December. GBP/USD could advance in the meantime.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.