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British Pound in Great Form with Brexit Troubles Fading

Constructive Brexit talks between UK politicians have imparted a sense of renewed optimism that has lifted the British pound to a 2-week high against the dollar and to a 3-week high against the euro.

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A “really constructive” discussion between the Conservative and Labour parties suggests that Prime Minister Theresa May is warming to the investor-friendly idea of a permanent customs union with the EU and as such has lifted the British pound to multi-week highs against both the dollar and euro, at $1.31 and €1.165.

May’s concession on a customs union would be extremely unpopular with members of her own party but some reports on Wednesday suggested that senior government officials were hopeful that a cross-party agreement on a way forward — one that would include a customs union of sorts — might come as early as next week.

The UK’s withdrawal from the EU was originally scheduled for March-29 but with gridlock in Parliament, at the eleventh hour the Kingdom was granted a Brexit extension until the end of October.

Foreign exchange rates are reflecting a perceived reduction in downside risks to Britain’s currency — Wednesday marked sterling’s fourth consecutive day of gains against the dollar — though some risk clearly remains, which makes March’s high of $1.338 the likely ceiling to currency appreciation in the short term.

While the threat of “no deal” has been eliminated for some, a very real risk that might send the pound to levels as low as $1.24 according to one UBS strategist is a general election — something that the Labour party has said it will pursue if it cannot force changes to Theresa May’s Brexit deal. With Labour consistently ahead in the polls, the heightened levels of uncertainty that would precede an election would undoubtedly force many investors to abandon their sterling positions in favour of safer currencies.

GBP to AUD - 3 month chart - Latest
GBP/AUD - 3 month Chart - Latest

Should the UK go on to find a cross-party consensus and then strike a deal with the EU, most analysts believe that sterling will be 7 to 11 percent higher at levels between $1.40 and $1.45. In the week leading up to the UK’s referendum on EU membership in June 2016, sterling averaged $1.462.

Unlike some other major central banks such as the Reserve Bank of Australia (RBA), the Bank of England is not expected to adopt an explicit (or even suggestive) dovish bias when it delivers its closely-watched Inflation Report on Thursday since that could exert unwanted pressure on the pound. Also on Thursday, the BoE will announce its latest decision on interest rates, which are universally expected to be left unchanged at 0.75 percent.


Further Reading


AUD/GBP Between a Rock and a Hard Place – USD Strength


Both the Australian dollar and British pound sterling have had a hard time of late caught between the rock of the China/US trade war and the Brexit hard place.

Last update: 13 Aug, 2019

Australia Cuts Interest Rates to Record Low

RBA Australian dollar AUD currency news and forecasts

The RBA has cut Australian interest rates to a record low of 1 percent in an effort to boost inflation. The Australian dollar is slightly stronger following the widely expected decision but is expected to lose 5–7 percent of its value before year-end.

Last update: 14 Aug, 2019

GBP’s Bright Start to the Year Is a Distant Memory

The British pound was the worst-performing major currency in the April-June period and remains “impossible to forecast” amid a Tory leadership battle that might force “no deal” or a general election.

Last update: 30 Jun, 2019


Posted to: News

Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product.

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