The British pound was in high demand on Tuesday ahead of an important meeting between British PM Theresa May and EU officials, at which investors are hoping for a Brexit breakthrough.
The pound was by far the best performer on Tuesday; it gained nearly 1.5 cents against the US dollar and now buys US$1.3055—a 2-week high.
Sterling’s gains spread far and wide. Against the euro, it changed hands at €1.15 for the first time in 3 weeks, and against the Australian dollar, it rose back towards last week’s levels in the mid-A$1.82s.
Traders are seemingly hopeful that Wednesday’s meeting in Brussels between British Prime Minister Theresa May and European Commission President Jean-Claude Juncker will bear fruit in the form of a breakthrough on the contentious Irish backstop. The meeting has been described as “significant” by a No 10 spokesperson, though Juncker has said he is not expecting a “concrete outcome.”
With a 12 percent loss against both the dollar and euro since the UK’s referendum on EU membership in June 2016, sterling bulls desperately need a deal; in the absence of one, the currency might lose 15-25 percent of its value, per the Bank of England.
Currency analysts at HSBC said earlier this month that sterling would be valued at levels near US$1.10 in the event of no-deal, near US$1.45 with a deal and at US$1.55 should Article 50 be revoked and Brexit cancelled entirely.
Fears for the UK’s economic future are being stoked on a daily basis—Honda confirmed on Thursday that is was axing 3,500 jobs in Swindon—and so a non-event of a meeting on Wednesday will likely see a sharp reversal in the pound’s trajectory.
Tuesday also brought with it the release of hard economic data. Although the ONS announced another record high in the number of Brits employed, the data was seen as backward-looking by traders and was ignored. There are clearly bigger (Brexit) fish to fry.