After finishing in top spot last week, the British Pound continued where it left off on Monday, rising against every major currency we closely follow here. GBP/USD was back on a 1.40 handle for the first time since February 26th whilst GBP/NZD reached a 3-month high of 1.95 and GBP/AUD hit 1.82 for the first time since the EU referendum back in June 2016. Overnight in Asia, the GBP consolidated its gains, holding steady against the USD and EUR before a somewhat softer than expected CPI report led to some profit-taking after its recent strong run.
The main reason for the continued strength in sterling was confirmation that the UK and EU have reached agreement on the terms of a Brexit ‘transition’ period extending beyond March 29th 2019 until December 31st 2020. Britain has won concessions from the EU to allow it to negotiate and sign trade deals during the period without seeking authorisation, but it will elsewhere have to follow EU rules, with strict sanctions if the government fails to do so. At a joint press conference, Brexit Secretary David Davis and EU negotiator Michel Barnier said they had resolved all the major sticking points to allow the deal to be signed by European leaders this week. The Brexit secretary said that the agreement represented a “significant step” while the EU’s chief negotiator described it as “decisive”. The director-general of the Confederation of British Industry, said: “Agreeing transition is a critical milestone that will provide many hundreds of businesses with the confidence to put their contingency planning on hold and keep investing in the UK.” Whether or not the early optimism is well-founded remains to be seen: The reaction of right-wing Conservative MP’s, those in fishing communities and in Northern Ireland may now be crucial in determining whether the GBP can hold on to its gains of the past week.
Today’s UK CPI numbers came in below the consensus expectation of 2.8% and, crucially, below the 2.9% which the Bank of England had been assuming when it warned last week of a somewhat faster pace of UK interest rate hikes. Annual inflation fell from 3.0% to 2.7% in February according to the Office for National Statistics which said, “The largest downward contributions to the change in the rate came from transport and food prices, which rose by less than a year ago.” Petrol prices fell by 0.2 pence per litre between January and February, to 120.8 pence per litre. Food and non-alcoholic beverages prices, meantime, rose by 0.1% between January and February this year compared with a rise of 0.8% a year ago. The British Pound opens in North America at USD1.4010, GBP/EUR1.1395 and GBP/CAD1.8320.