The Pound to US Dollar exchange rate strengthened by around three cents to strike a two-month high last week.
GBP/USD Ticks Higher
‘Cable’ appreciated by around a cent from 1.24 to 1.25 last Tuesday, helped by a marked decrease in bets against Sterling. The Commodity Futures Trading Commission released data showing that short positions against the Pound tumbled to the lowest level since September. US data signalled that the world’s largest economy is up to speed, with annual GDP growth of 3.2% in the third quarter, but it was not enough to lift the ‘Greenback’ versus the resurgent Pound.
GBP/USD flatlined on Wednesday, with an OPEC deal to curb oil production taking centre stage. The agreement drove crude prices to yearly highs, which bolstered the appeal of the US Dollar – the currency in which international oil markets are priced – but also the Pound because of the implications for higher inflation and therefore tighter domestic policy.
Sterling Surges On Hopes of Single Market Access
Hopes that a so-called ‘hard Brexit’ would be avoided sent the Pound tearing higher across the board on Thursday. Brexit minister David Davis hinted that the UK government could pursue involvement in the single market by commenting that Downing Street would be prepared to pay into the EU budget in exchange for retained access. The remarks prompted market-wide Sterling appreciation.
US non-farm payrolls printed positively at 178,000 on Friday, helping bring the unemployment rate down to a nine-year low of 4.6%. However, GBP/USD continued to rally above 1.27 as fears of a ‘hard Brexit’ receded.
Week Ahead
Although data prints such as US factory goods and UK industrial production could have a minor impact on ‘Cable’, this week’s trading session will likely be driven by Brexit sentiment.
The recent shift in government rhetoric away from a ‘hard Brexit’ has favoured the Pound, however, if the UK Supreme Court grants PM Theresa May the ability to invoke Article 50 without parliamentary consent then we could see a reversal of this trend. If the judges rule that MPs need to vote on Brexit then we could see Sterling appreciate further. The result is expected on Thursday.
But, at its highest level for two months, the Pound to US Dollar exchange rate does look susceptible to profit-taking even if investors continue to eye a softer government approach to Brexit.