Pound exchange rates have continued their recent strong run having now rallied over 2.5% this week against both the US dollar and Euro. This brings the monthly gains for the pound to nearly 4.5% this year, but will the run continue?
Why has the pound rallied?
Much of the moves have come following a degree of relief coming back to the market as it has all but priced out the chances of a ‘no deal’ Brexit. Of course this could still happen, particularly if a number of MP’s refuse to budge on areas such as the Northern Ireland “backstop”. However sentiment appears to have changed and it would appear MP’s appear to be finding more ways to back May’s deal if certain concessions can be found, rather than focusing on a hard Brexit and the potential for a ‘no deal’.
What is the next focus for the pound?
Next Tuesday will MP’s will vote on Prime Minister Theresa May’s proposal on Brexit after rejecting her initial plan by a record breaking 230 votes last week.
It is expected that Mrs May will look to tweak the deal and will address concerns regarding the Northern Irish “backstop” and will look to gain support from her own back benchers along with the Democratic Unionist Party who have backed her throughout the process.
If she is able to secure the vote of parliament and she can take her new proposals to the EU then we may still be in line for a departure on the 29th March. My feeling is this is unlikely and I would expect a delay of Article 50 by 3-6 months and would expect the pound to stay relatively flat as a result. On this basis the current buy levels look a decent buy opportunity in my view.
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