Brexit Gives Pound A Boost
4th December 2017.
Rising confidence that Britain will secure a deal for its departure from the European Union helped the pound gain more ground last month.
Sterling finished November on a high, rising by 2.5 per cent and accelerating ahead of the currencies of the world’s leading nations.
Many have welcomed reports this week that the Government has improved on the Brexit divorce bill with Brussels, under which Britain could pay up to €50 billion to the EU.
There are however still doubts over the UK’s ability to reach a deal with the EU, with Prime Minister Thersa May desperate to move on from the Divorce Bill and onto trade negotiations with the EU.
The Pound has been experiencing volatile behaviour over the last year, with the exchange rate plunging down to $1.33 on the day of the Brexit referendum in June 2016. It has yet to return to its pre-vote level, making imports more expensive and contributing to rising inflation.
As November drew to a close on Thursday, analysts at Nomura International calculated that the pound had achieved a bigger rise against the dollar than the euro or the Japanese yen. Many of the world’s leading currencies rose against the dollar last month, while the Swiss krona, Canadian dollar, New Zealand dollar, Australian dollar and Norwegian kroner lost ground.
“Should a transition deal be confirmed, downside risks for the currency will be firmly pushed back in time”, insists Lefteris Farmakis, macro strategist at UBS.
Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets, urged caution, however. “There is a lot of water that has to flow under this particular bridge before we see investors becoming optimistic about the pound in their portfolios,” he said.
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