Foreign Exchange Daily Market Update 27/11/2017

Mon, November 27, 2017

The Pound progress hinges on clearing Brexit bill hurdles.

The survival of the pound’s three-week rally against the dollar depends on whether ongoing Brexit negotiations can clear the way to discuss trade.

With the week being relatively light on key U.K. economic data, sterling movement this week could will be decided on how discussions between British and European Union officials. The clock is ticking after the bloc’s President Donald Tusk said a financial offer from the U.K. on the exit bill must come by early next month to win approval to move talks on to trade at a Dec. 14-15 summit.

The Pound could rally to move through $1.34 if agreement is reached with the EU to discuss the future relationship, according to Mizuho Bank Ltd’s head of hedge fund sales. however, it could fall to $1.28 if the news flow suggests a December deal is not achievable, he said.

There is also a risk that this summit could see a breakdown in talks and a head toward the fear of a ‘hard’ Brexit, which could easily put Prime Minister May’s position in jeopardy.  We continue to see far too little inflation risk premium and political risk premium in U.K. assets.

The pound traded around $1.33 in London on Friday. It has rallied about 2% in the past three weeks, partly on the back of a weaker dollar.

Britain’s recent economic data has been patchy. While industrial production rose more than expected and output increased across the manufacturing sectors, construction shrunk, and consumer confidence slipped to levels last seen shortly after the Brexit vote. All this has could see sterling declines.

Data to look out today.   

No data out today.

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