Is The Strengthening Of British Pound Temporary? ETF In Focus

The British pound touched its highest level since Aug 3 as an official from the European Union indicated progress in the Brexit deal. Sterling rose 1.2% on Aug 29, its biggest rise in the past two months.

There has been a deadlock between the Britain Government and the European Union Member states on the issue of Northern Island Border. Both the parties are keen to finalize the matter by October, so that the agreement could be ratified with the UK, which is set to leave the EU on Mar 29, 2019 with or without a deal.

The insufficient number of Brexit meetings stirred up concerns as the EU Summit in October is inching closer. This is supposed to be the final meeting to ensure the UK’s exit from EU and discuss their mutual relationship post the event.

What Led to the Latest Rebound in Pound? 

The EU’s chief negotiator eased tensions on Aug 29 as an offer was made for an unprecedented partnership with Britain after Brexit, so that trade is not hampered. This came as a relief for the hard-hit sterling bulls who had already started trading, assuming no deal-Brexit via the currency derivative markets. 

Apart from EU’s chief negotiator’s comments, market expectations of a rate hike by the Bank of England (BoE) also played a role in pushing the pound higher. Per an article published on Bloomberg, market watchers started betting on a slightly faster pace of policy tightening from the BoE, “fully pricing in an interest-rate rise in November 2019.” The expectations are based on BoE governor Mark Carney’s previous comments that the future course of British monetary policy will be contingent on the end result of Brexit (read: Currency ETFs Winners & Losers on Turkey Crisis).

Investors should note that Dominic Raab, Britain’s Brexit secretary left the possibility open in the House of Lords that Britain could withhold the 39 billion euro payment it had agreed to pay EU if there is a no deal-Brexit. The foreign exchange analysts predicts that pound sterling will fall to the level of $1.2 in the absence of mutual consensus on the exit, a Reuters poll found this month. Traders have started betting on the weakening of sterling against the euro (read: German ETFs in Focus as Q2 GDP Growth Accelerates)