Fate of GBP Depends on Brexit Deal

Sterling had been on a downward trend since the U.K.’s vote to leave the European Union in 2016, but reduced concerns over an abrupt break-up with the EU are sending the currency higher.

The pound traded at $1.40 against the dollar Tuesday morning, not only boosted by a weaker dollar, but also because traders are more confident that the U.K. will strike a deal with the EU and thus avoid a so-called hard Brexit, where the U.K. and the EU would be trading under World Trade Organization (WTO) rules.



“(Prime Minister) Theresa May does not have the political capital or the unity within the government to implement a ‘hard Brexit,'” Stephen Gallo, head of European forex strategy at BMO Capital Markets told CNBC via email Tuesday.

“Other factors like the Irish border issue have also tied her hands in this regard. Conservative, pro-Brexit ministers and MPs are loathe to undermine Theresa May out of fears of toppling the government and paving the way for a snap election. For these reasons, we revised up our 12-month view in GBP-USD to $1.45 last October,” he said.

On June 23, 2016, the day the U.K. held a referendum on its EU membership, sterling was at $1.48. It tumbled on the following day to $1.36 and touched $1.20 in January 2017. According to Gallo’s predictions, if Brexit negotiations produce some sort of deal between the U.K. and the EU, sterling could be back to its pre-Brexit values by the end of the year.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza