Sterling yo-yos amidst ‘secret’ deal rumours

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Daniel Webber
Daniel Webber
Founder & CEO
Daniel is Founder and CEO at FXcompared and has numerous years of experience in the international finance world, especially within the media, technology and property sectors. Daniel is passionate… Read more
  • Mrs May reportedly secured a ‘secret’ deal the past few days
  • 10 Downing denies the claims
  • The British pound likely to whipsaw due to the different headlines that have been coming out

The British pound’s value rose against the euro at the start of the week after the Sunday Times published an article about Theresa May’s ‘secret’ Brexit deal.

The deal, according to the news report, could win the House of Commons and that it is about to be finalised contrary to what was previously disclosed. Unfortunately for money exchange brokers and the rest of the forex market, 10 Downing denied the report’s key details. The Prime Minister’s office did tell reporters that negotiations are indeed 95% complete, adding more confusion into an already volatile situation.

Analysts say that this is what is causing the sterling to be being pulled in opposite directions. According to Commonwealth Bank of Australia strategist Joseph Capurso: “GBP/USD will continue to be headline-driven on Brexit politics.”

Pound Sterling Live says that the British pound got back earlier gains as the exchange rate is hovering at 1.1425 while GBP/USD is at 1.3015. The magazine adds, however, that the gains will remain limited.
Commerzbank analyst Antje Praefcke also shared that: “it is sensible not to react to the constant toing and froing on the political front but to wait for the final outcome”. Praefcke notes though that there is a need to prepare for different scenarios.

The sterling had its biggest rally in over a year on November 1, according to reports. It raced against the American dollar to 1.3000 and it owes this to what many describe as the “hawkish” Bank of England policy meeting that noted a possible interest rate hike in the coming year. Another reason, based on the analyses of different experts, is the renewed optimism for a good Brexit deal.

This optimism continued over the weekend because of the ‘secret’ deal but reports from Monday say that markets are now cautiously optimistic. Analysts add that only a confirmation from the British government will stabilise the situation.
"Until there is unequivocal confirmation that the UK will avoid a hard Brexit next year, the outlook for the Pound will remain decidedly grey", says Jane Foley, a foreign exchange strategist with Rabobank in London. Based on a forecast from Rabobank, EUR/GBP will be trading at 0.86 when the Brexit starts.
While the bank assumes that EU and British officials will reach an agreement, Standard & Poor issued a warning last week that there is a possibility of a blind Brexit.

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