The pound has managed to hold on to its gains this week as the diminishing chance of a ‘no deal’ Brexit has helped the home currency to thrive. Whilst the pound remains relatively strong at present, expect it to remain very sensitive to any Brexit related news and for volatility to be drastically heightened.
Reports suggest that Boris Johnson is studying legal routes to foiling Parliament and delivering Brexit, no matter what, on the 31st October. Parliament devised a law last week requiring the Prime Minister to make an official request for a Brexit delay at the European Council meeting on October 17th. Rumour has it that Johnson will abide by the law and send a letter requesting a Brexit extension, but he will follow this up with a letter stating that the Government does not want any delay whatsoever. Today will also see Parliament offered another chance to vote for a General Election, to take place before the European Council meeting. There is a lot going on with Brexit at present so expect markets to move sharp and quick as soon as we hear any news. Any hint towards a ‘no deal’ Brexit or increase political uncertainty, such as a General Election being approved, would hinder the pound. On the flip side, anything that points towards a ‘no deal’ being completely off the table will strengthen Sterling.
This week is also a big one for the Euro as Thursday we have the European Central Bank policy meeting. The ECB is widely expected to announce some form of monetary loosening, such as an interest rate cut or a restart of Quantitative Easing (QE). There is also a high chance they could announce both together! Either one of these would weaken the single currency. Lowering interest rates makes investors look elsewhere as they won’t be getting as much back for their investment and QE weakens the currency due to making it more readily available and diluting the market. There is a high probability that the Euro will weaken on Thursday but by how much could be determined by the amount of stimulus announced.