Pound US dollar exchange rate fluctuates as Brexit draft text agreed

The pound surged higher during yesterday’s trading session as markets cheered the agreement of a preliminary Brexit draft by the UK and EU.

However with the 500-page text still facing the scrutiny of the UK cabinet, as well as Parliament, investors remain cautious towards Sterling this morning, with GBP/EUR subdued at €1.1498, GBP/USD sliding to $1.2971 and GBP/NZD tumbling to NZ$1.9119, while both GBP/AUD and GBP/CAD hold steady AU$1.8014 and C$1.7174 respectively.

Looking ahead, the release of the UK’s latest CPI figures may lift the pound this morning, if inflation accelerates in line with expectations in October.

What’s been happening?                
                                      
The pound roared back into life on Tuesday, recouping ground lost against many of its peers at the very start of the week amid renewed optimism that the UK and EU may be close to reaching an agreement on Brexit.

UK and EU officials reached an agreement on the draft text of a Brexit withdrawal agreement late on Tuesday – a key step in finalising a deal that led to strong gains in GBP.

This allowed Sterling to build on the gains made earlier in the session on the back of the UK’s latest labour report, which revealed domestic wage growth had continued to accelerate in September.

The Pound’s gains proved to be particularly strong against the US dollar, with the GBP/USD exchange rate surging as much as 0.8% in trade yesterday as demand for the ‘Greenback’ was trimmed by investors moving to a risk-on position amidst renewed US-China trade optimism.

Meanwhile with Italy refusing to submit a revised budget to the European Commission ahead of Tuesday’s deadline, investors were understandably wary of the euro yesterday, leading the GBP/EUR exchange rate to climb to a fresh six-month high.

What’s coming up?

While Brexit is likely to remain a key focus for GBP investors today on hopes a deal might even be signed, the direction of the pound is also likely to be driven by the release of the UK’s latest Consumer Price Index.

We could see Sterling trend high this morning if a predicted rise in inflation helps to bolster Bank of England rate hike expectations.

Meanwhile the euro may remain subdued today following the release of Germany’s GDP figures earlier in the session after they revealed the Eurozone’s largest economy contracted 0.2% in the third quarter.

Finally the US will also publish its CPI figures this afternoon, with a sizable jump in inflation likely to strengthen the US dollar as it all but confirms the Federal Reserve will raise interest rates in December,