Has cable bottomed or more volatility to come?
The pound is rallying on Monday and for the second time in a couple of weeks, it’s the EU chief Brexit negotiator – Michel Barnier – that’s responsible.
Sterling has become very sensitive to positive Brexit news over the last couple of weeks, having spiked on a couple of occasions on reports that the UK will get a bespoke deal and that Angela Merkel is willing to accept less detail on future ties. Clearly there is a feeling that a lot of Brexit pessimism and no deal risk has been priced in which is why we’re in a state of such sensitivity to any reports that indicate a breakthrough will come.
The reported comments do certainly support the previous reports and provide some hope that both sides are fully committed avoiding a no deal scenario, something that at times hasn’t always appeared the case. Assuming these comments aren’t denied and this is the case, it’s possible that things could be really looking up for the pound after what has been quite an awful summer for the currency, having fallen more than 10% against the dollar at one stage.
The pound is also vulnerable to these comments being clarified or a caveat being attached that a no deal is also still very possible, as we’ve seen when previously – apparently – positive reports appeared.
GBPUSD Daily Chart
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