Good morning,
If June was the supposed nightmare month for sterling; then yesterday heralded the alarm to wake it up and push it out from behind the duvet. For weeks, June had been the month that sterling traders have been looking towards to set the tone for a bearish Q3 and Q4, as the UK approached the Brexit extension deadline and its last round of talks. Fast forward just over a week and it is almost like nothing is happening at all – with sterling notching up impressive gains against most majors, as the fear begins to dissipate. Whilst is in undeniably important to consider both sides of the price when considering the relative strength or weakness of a currency pair; take my blog post on “Four reasons the dollar is suffering” for example – the recent pound positivity has paired up to push the pound up and above what anyone would have expected, especially with the underlying anxiety on a hard Brexit still there.
Essentially, despite the last round of talks ending in failure, with Michel Barnier telling us what we would already presume; namely that the UK is back-peddling on commitments made by May’s Government, making a wide gap in agreement wider, what has caused a certain amount of Brexit pressure to unwind, is the admission that the trade talks would now continue past June all the way up to the line, with a meeting of both Johnson and von der Leyen looking increasingly likely in the short term. The market seized upon the news to do what it does best, kick the proverbial can of risk down the road for the pound and flood in more near term bets on the currency.
Make no mistake, despite the easing of pressure on the pound in the short term, the underlying problems are still there, with the cracks being papered over for now. As we have seen with Brexit talks under May’s leadership, sterling usually gets extremely volatile towards a deadline for an extension then rebounds when granted one. If one trusts history to repeat itself, we could reasonably expect this to still be the case; however, as mentioned before, this Government is not like the last and is seemingly determined to push through the talks on the current time frame of one year.
The end of June still marks the date of when the UK will have its last chance to propose an extension – all the near term upward sentiment in the world won’t change that fact.
Have a great day,
Author: Joshua Haden-Jones, Senior Relationship Manager
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