Chaos and jolts. The Pound Sterling has had an incredible week, like the discussions and procrastination on Brexit, chaining the falls and soaring as the twists around the exit of the United Kingdom from the European Union.
Yo-yo, roller coaster, quilts and candles, falls and soaring, up and down . The pound sterling, the real barometer of Brexit , has lived one of its wildest weeks, following the votes and twists that jostle since Monday, the exit of the United Kingdom from the European Union .
Over the week, the British currency has risen by 1.80% against the dollar and 1% against the euro. Friday, it traded at about 1.325 dollar and 1.17 euro.
The extremely sensitive book on the Brexit soap opera
This increase illustrates the surprising confidence of the markets in a friendly divorce despite the disorder in Westminster. However, it does not reflect the extreme sensitivity of the book to the Brexit series.
Normally, the currency reacts to changes in monetary policy or to numerous economic indicators. But for several months, “Brexit is clearly the main trigger” said Friday, March 15 Carlo Alberto De Casa, analyst for ActivTrades.
This makes the British currency a good indicator of investors’ opinion of the terms of the Brexit – the pound being worth much less than before the referendum of June 2016. When the chances of an agreement between the UK and Both the United Kingdom and the EU are rising, the pound is appreciating, and conversely the pound is falling when the risks of a Brexit increase without agreement or a prolongation of the current vagueness.
Tuesday erases Monday
The past week is a perfect summary of the weight of Brexit’s stakes on the pound.
Monday is the optimism that prevails among traders, especially in the evening, when British Prime Minister Theresa May announces having obtained final concessions from the European Union. In just a few minutes, the pound is up 1% against the dollar, a significant figure across the colossal currency market.
Tuesday morning, analysts question. Will the latest concessions be enough for Theresa May’s deal with the EU to be voted on by British MPs after a first free vote in January?
“The defeat of the British government is no longer certain for the British government,”note in a note Lee Hardman and Fritz Louw, analysts for MUFG. But for Neil Wilson, an analyst for Markets.com, “the refusal of the pound to rise higher betrays the doubts that remain . “
The hopes are quickly swept away. At the end of the morning, the government’s legal adviser considers that the “legal risk” presented by the agreement “remains unchanged” . Immediately, the book wins and erases all his accumulated gains on the previous 24 hours. For the markets, it is now clear that another defeat is coming for Theresa May – it will take place the same evening.
Attention to the “no deal”
On Wednesday morning, optimism is back. Despite the absence of new elements, the book is gradually but surely rising, a few hours before a vote of the deputies on the “no deal”. Around 18:00, it is up more than 1% against the dollar and the euro, compared to its previous day.
Then a stormy session in Parliament, which makes the pound leap to the summits . At 9:30 pm, it reached 1,1803 euros, a level more seen since May 2017.
Conservative MPs and even ministers defied Theresa May’s voting instructions by adopting an amendment that rejects the option of an exit without agreement “whatever the circumstances” . In the process, Theresa May announced that she will submit a third time to Parliament.
Finally, on Wednesday, the British currency ended up 2% against the dollar and 1.6% against the euro, its best day in two years.
Thursday, Parliament decides to request the postponement of Brexit , removing the prospect of an exit without agreement. But the pound reacts little because this vote was widely expected and caution remains in place.
“In case we go to a” no deal ” , the dramatic scenario and the most complicated for the United Kingdom, we could witness huge movements on the pound” , warns Carlo Alberto De Casa, according to whom all eyes are now turned to the EU’s response.