Brace yourself for major Brexit-induced pound volatility

Cornelia Mascio
Novembre 14, 2018

The pound has risen against the euro in recent days as a Brexit deal seemed on the cards.

It later extended those gains to $1.2980, up almost one percent and back to levels it traded at on Friday.

Milan shed more than one percent after Italy's populist government defied the European Commission by sticking to its big-spending budget plan, risking financial sanctions in a high-stakes standoff that could spell fresh trouble for the eurozone.

After months of tough negotiations, Britain has put together a draft Brexit divorce deal with the European Union (EU), Britain's Prime Minister Theresa May announced on Tuesday. "The gains in the euro will be muted", added McCarthy.

Major currencies traded in tight ranges in London trading hours, with the dollar below a 16-month high hit this week as investors took profits. It was the largest one-day percentage decline for the contract since September 2015.

"The pound is behaving like a cat on a hot tin roof - leaping to a month high on Tuesday before sagging on Wednesday as the DUP's reservations about the government's Brexit gambit emerged", said David Lamb, head of dealing at Fexco Corporate Payments.

The Australian dollar changed hands at $0.7224, gaining 0.12 percent versus the greenback.

U.S. economic data later this week is expected to provide further support for the dollar, with the U.S. Labor Department publishing October inflation and real earnings figures Wednesday and the Commerce Department releasing retail sales data for October on Thursday.

Lien expects the dollar to strengthen further on the back of a robust US economy, rising interest rates and its safe haven status.

"With the outlook for core prices skewed to the upside as wages are set to rise, today's number will reinforce the Fed's approach towards gradual and ongoing tightening, keeping Dollars supported", ING analysts said in a note to clients.

Until the Brexit is a "done deal in March 2019", FX traders will have little choice but to ride a wave of uncertainty. The yen touched a six-week low of 114.20 on Monday.

The ICE U.S. Dollar Index rose to its best level in close to 17 months, last up 0.7% at 97.550.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. This article is strictly for informational purposes only. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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