The Sterling/Dollar exploded into extreme gains on Tuesday with prices clipping above 1.2400 after Prime Minister Theresa May’s optimistic Brexit speech signalled that the United Kingdom was seeking a deal which would satisfy both parties. A critical comment that played a role in the Pound’s sharp rally was how Theresa promised a parliamentary vote on Britain’s deal to leave the EU which suggested that she had acknowledged that the pro-EU parliament would be involved in the negotiations.
Although markets were initially unreactive to the fact that May stated that Britain was not seeking partial membership of the EU nor will be proposing for membership of the EU single market, this may pressure Sterling in the future as investors re-evaluate the ramifications. While a transitional deal may be enacted to avoid a Brexit cliff edge on business, there is still a threat of the hard Brexit negatively impacting the UK economy in many dimensions.
PM Theresa can be commended on her ability to temporarily transform the hard Brexit fears to Brexit optimism but uncertainty could still limit upside gains on the Sterling in the medium to longer term. The fact that the government will put the final Brexit deal to vote in Parliament may buoy Sterling in the short term with Dollar weakness prompting buyers to send the GBPUSD towards 1.2500.
Investors may direct their attention towards the UK labour market report which could illustrate how the UK economy has fared in the Brexit gripped environment. While a positive report has the ability to elevate the Sterling higher, the main driver behind the Pound’s movement this week should continue to revolve around the lingering impacts of Theresa’s Brexit speech.
There still remains a strong likelihood that Sterling comes under renewed selling pressure if uncertainty resurfaces in March when the article 50 will be invoked. Technical traders may continue to observe how prices react to the pivotal 1.2350 level which if bulls conquer could open a path higher towards 1.2500.
Dollar sinks lower
The rising anxiety and uncertainty ahead of Donald Trump’s inauguration this coming Friday has exposed the Greenback to heavy losses with the Dollar Index trading towards 100.60 as of writing. Sellers have attacked the Greenback incessantly with bears exploiting comments from the President-Elect on how “the Dollar is too strong” to pressure the currency further. With optimism slowly fading over the series of interest rate hikes under Trump and the lack of clarity provided on the proposed fiscal stimulus measures weighing on sentiment, the Dollar may find itself vulnerable to further losses.
The Greenback could turn extremely sensitive ahead of Friday’s inauguration with bears utilising the anxiety to pressure the Dollar Index further. Weakness below 100.00 could signal the end of the Trump fuelled bull rally on the Dollar Index.