Brexit negotiations continue to dominate the headlines and remain the key driver behind Sterling’s fluctuations. Yesterday, GBP jumped higher against most major currencies including euro and the US dollar as markets anticipated Theresa May reaching an agreement with Brussels on the settlement bill, Northern Irish border and citizens’ rights. As we know now, this transpired quite differently and markets eventually saw sterling fall back to its heartland trading levels by the end of the day, confirming once more that GBP carries an inherent risk to it deriving from political events. On a more positive note, it could be suggested that GBP is on the cusp of making more permanent gains and once clarity is received from negotiations in Brussels, traders agree that there is a chance of historical highs against the euro and dollar.
There remains a high degree of confidence in both sides’ ability to reach a settlement, with EU Commission President Juncker expecting more progress this week, and Chief EU Negotiator Barnier curtailing a trip to the Middle East to begin work on the all-important trade deal. Most banks have predicted GBP/USD moves to around the 1.3700 level as soon as an agreement is made. Strategists see little or no likelihood of both sides retreating to the drawing board in order to restart negotiations, however the outlook remains ultimately positive for sterling. The general feeling amongst city traders is that GBP/USD will close 2017 at the 1.40 level and GBP/EUR will settle at 1.18 which would require some sort of Brexit deal to be struck.
Elsewhere, it was a fairly steady day as Brexit negotiations had little impact on the euro itself and EUR/USD remained close to its opening levels. European PMI figures have just been released and came out stronger than last month but we expect the political landscape to be fast moving over the next week and this will have a detrimental effect on the currency markets.