The British Pound had a much better day than might have been expected on Thursday, rising against most currencies except the newly-buoyant Australian Dollar and Canadian Dollars. Its best performance came – in order - against the NZD, EUR and USD. During the European morning today, the GBP has slipped back as investors try to interpret the political signals from across the English Channel.
Ahead of an EU Leaders’ Summit today, Prime Minister Theresa May had dinner in Brussels yesterday evening to lobby for swift agreement on the terms of a post-Brexit transition period. According to Press reports, May told the leaders that the British government “makes no secret of wanting to move on to the next phase and to approaching it with ambition and creativity”. “I believe this is in the best interests of the UK and the European Union,” she said. “A particular priority should be agreement on the implementation period so that we can bring greater certainty to businesses in the UK and across the 27.” Just ahead of lunchtime in Brussels, European Commission President Donald Tusk tweeted, “EU leaders agree to move on to the second phase of #Brexit talks. Congratulations PM @theresa_may”.
At its final meeting of the year, the Bank of England’s MPC voted unanimously 9-0 in favour of no change in Bank Rate. Its accompanying Statement read very cautiously, stressing that the pace of future rate hikes would be very gradual and limited in extent. It reiterated its judgment that that “inflation is likely to be close to its peak, and will decline towards the 2% target in the medium term.” Interest rate changes – if they are made – are more likely to be announced in months when there is also a Quarterly Inflation Bulletin and Press Conference. The cycle for this is February, May, August and November so we shouldn’t have to worry about a rate hike at the January MPC meeting.
The Pound opens in North America this morning at USD1.3395 and EUR1.1350 with GBP/CAD at 1.7110.