The Pound still hasn’t broken its 11-day sequence of rallying without testing the previous day’s low, even though the price action over the last 24 hours suggests a more two-way market than we’ve seen over the last couple of weeks. GBP/USD yesterday reached a high around 1.4330 during Mario Draghi’s Press Conference before giving back more than 2 cents to 1.4115 after President Trump’s comments in favour of a stronger US Dollar. It has subsequently recovered more than a full cent to 1.4250.
We’ve been wondering how the Pound would react once the subject of Brexit came back on to the agenda; something about which investors have heard very little in this new year. That is about to change as a row has broken out between the PM and her Chancellor, whilst a group of backbench MP’s say they are getting closer to the 48 votes needed to trigger a leadership election.
Chancellor Philip Hammond Hammond told business leaders in Davos that the government would seek only “modest” changes in its relationship with the European Union. “Instead of doing what we’re normally doing in the trade negotiations – taking two divergent economies with low levels of trade and trying to bring them closer together to enhance that trade, we are taking two completely interconnected and aligned economies with high levels of trade between them, and selectively moving them, hopefully very modestly, apart,” Hammond said.
After pro-Brexit Conservative MPs in Westminster reacted angrily to the speech, and some ministers privately made their disquiet known, Downing Street moved to distance the prime minister from her chancellor’s remarks. A source said: “Whilst we want a deep and special economic partnership with the EU after we leave, these could not be described as very modest changes.”
With this latest row set to run in to the weekend, today’s Q4 GDP numbers were a touch stronger than consensus forecasts but exactly in line with the +0.5% rise which the Bank of England expected in its November Quarterly Bulletin. The reaction has so far been fairly predictable: “Leave” supporters claim proof the UK can survive post-Brexit whilst the “Remain” camp argue it could all have been so much better. BoE Governor Carney is speaking in Davos later this afternoon.
The British Pound opens in North America this morning at USD1.4255, CAD1.7560 and AUD1.7655.