GBP/USD: Pound Steadies As No Deal Brexit Risk Subsides

After a strong start, the pound fell gradually lower versus the dollar on Tuesday to finish the session close to the flatline. The pound US dollar hit a peak of US$1.2839 before tumbling to a low of US$1.2660 and then rebounding into the close. The pound was falling once again in early trade on Wednesday.

What do these figures mean?
When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.For example, it could be written:1 GBP = 1.28934 USD Here, £1 is equivalent to approximately $1.29. This specifically measures the pound’s worth against the dollar. If the US dollar amount increases in this pairing, it’s positive for the pound. Or, if you were looking at it the other way around:1 USD = 0.77786 GBP In this example, $1 is equivalent to approximately £0.78. This measures the US dollar’s worth versus the British pound. If the sterling number gets larger, it’s good news for the dollar.

Brexit ensured another volatile session for the pound on Tuesday. Earlier in the previous session the European Court of Justice General Advocate published his opinion over Brexit withdrawal. His belief that the UK could unilaterally withdraw from the Brexit process boosted the pound. Although this initial rally soon reversed after the Prime Minister Theresa May’s spokesman issued a statement saying that Theresa May was not intending to cancel Brexit.

Later in the session the pound US dollar exchange rate experience intense volatility in response to a string a Brexit and Parliament headlines. Parliament voted that the Prime Minister was in contempt of Parliament by not publishing the legal documents on Brexit. This was the first time in history that a Prime Minister was considered to be in contempt of Parliament. The pound fell on the news and Theresa May will publish the document today.

Finally, the pound rebounded back above $1.27 as MP’s voted in favour of giving more power to Parliament over the next Brexit steps. Few MP’s are in favour of crashing out of the EU without a deal. By giving Parliament a bigger say on what happens should Parliament reject Theresa May’s plan, the chances of a no deal Brexit have been greatly reduced.

Why is a “soft” Brexit better for sterling than a “hard” Brexit?
A soft Brexit implies anything less than UK’s complete withdrawal from the EU. For example, it could mean the UK retains some form of membership to the European Union single market in exchange for some free movement of people, i.e. immigration. This is considered more positive than a “hard” Brexit, which is a full severance from the EU. The reason “soft” is considered more pound-friendly is because the economic impact would be lower. If there is less negative impact on the economy, foreign investors will continue to invest in the UK. As investment requires local currency, this increased demand for the pound then boosts its value.

Brexit headlines will continue to drive the pound today as the debate in Parliament continues.

Dollar Rallies on Safe Haven Status

After a shaky start the dollar powered higher across the previous session. Concerns of a global economic slowdown rumbled across financial markets dragging stocks sharply lower. The dollar is considered to be a safe haven thanks to its reserve currency status. Therefore, in the face on uncertainty and fear of a slowdown investors were buying into the dollar.

Today, investors will look towards ADP private payroll data ahead of Friday’s all-important US jobs report.

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Inc., Currency Live or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. Consult our risk warning page for more details.

This article was initially published on from the same author. The content at Currency Live is the sole opinion of the authors and in no way reflects the views of TransferWise Inc.