Pound Sterling Exchange Rates Jump on Soft Brexit Possibilities

Esequiel Farfan
Enero 13, 2018

Sterling's rally came after news that European countries Spain and the Netherlands would be open to the United Kingdom having a softer Brexit.

The pound also climbed against the euro (GBP/EUR), reaching highs of 1.1291. The pound jumped to the strongest level since the Brexit referendum as Spanish and Dutch finance ministers were said to be working together for a deal that keeps Britain as close to the European Union as possible.

According to reports today, sources are claiming that the Foreign Ministers from each country had independently agreed to work with each other to maintain a deal that would benefit both the United Kingdom and EU.

The pound's weakness since the Brexit vote has had a major impact on the economy, because it has made the import of goods prices in euros and dollars more expensive. The pound held on to most of those gains.

It comes after a report by Bloomberg that said Spain and the Netherlands are potentially open to a soft Brexit deal for the United Kingdom in order to maintain trade ties.

However, any suggestions that an increasing proportion of the Federal Open Market Committee (FOMC) favour three or more interest rate hikes over the course of 2018 could see United States dollars exchange rates rally strongly. Just because two of the 27 members say this, it doesn't mean a softer Brexit will happen. "I doubt it's as straightforward as that", he said.

But sterling made up more ground versus the dollar, weakened by the USA producer price data that suggested inflation may not pick up as expected later this year.

Pound Sterling Exchange Rates Jump on Soft Brexit Possibilities
Pound Sterling Exchange Rates Jump on Soft Brexit Possibilities

The pound had been trading at roughly $1.50 before the vote to leave the EU.

Sterling rallied as much as 1.1 per cent, the biggest intraday gain since mid-September, as the news rekindled optimism about the United Kingdom having continued access to Europe's single market.

Sterling is set to remain volatile due to Brexit uncertainty.

The FTSE 100 briefly fell into negative territory and touched its session low before rebounding and closing higher. It gained 0.1 per cent to 88.80 pence per euro while the yield on United Kingdom 10-year government bonds gained three basis points to 1.34 per cent.

Five-year gilt yields rose more than 6 basis points on the day to 0.885 percent, matching the post-Brexit vote high of 0.885 percent set on October 25.

As a result, the pound hit the highest level against the US dollar (GBP/USD) since the Brexit referendum, nearing the 1.37 barrier, while the pound also climbed against other currencies, making notable gains against the Canadian dollar, Australian dollar, New Zealand dollar, and South African rand.

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