August saw Sterling plumb new multi-month lows against several currencies, including USD, CHF, and EUR. But the past week witnessed an unexpected recovery for the Pound Sterling.
Against the US Dollar, the rate soared to 1.3300 at the time writing today (see Chart). Against the Euro, the rate jumped to an eight-week high (1.130). With today’s price jumps, has Sterling passed its nadir onto the road to recovery?
Some say yes, some say no. The elephant in the room remains Brexit. Coinciding Sterling’s rally today is the ongoing EU summit in Salzburg. Clashes, counter-arguments, and the continuing political impasse prevent a Brexit deal to be had right now. The sticking points are ‘Irish Backstop’ and custom union. But investors are hopeful that an agreement can be reached later this year. Hence, Sterling’s rally. Clearly, both sides do not want a ‘no-deal’ Brexit – simply because the economic cost will be huge. Many large international firms issued stark warnings that a Hard Brexit will lead to a lower investments in the country.
Moreover, it appears that UK’s inflation level remains high (2.7% last month). It is quite possible that the Bank of England will continue to raise rates into 2019. The last meeting produced a 25bps hike (to 0.75%). This expectation may underpin Sterling’s strength.
Technically, GBPUSD is on a recovery rally after a horrid four months (Apr to Aug), during which prices slumped from 1.44 to 1.26. Having cleared the round number level 1.3000 recently, that level is now clearly a floor. We watch for a pullback here.
For GBPEUR, the rate is also on a rebound. A ‘V’-shaped recovery is noted on its daily chart. But some technical resistance is expected at 1.13. We anticipate a pullback into the 1.120 region.
Jackson has over 10 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.