Monthly Wrap: GBP – Pound volatile as Brexit dominates market sentiment

Key takeaways:
–              Brexit chaos prompts dramatic fluctuations in Sterling.
–              Parliamentary vote seen as key moment for GBP exchange rates.
–              GBP Monthly lows: €1.11, $1.26, AU$1.72, NZ$1.82, C$1.67
–              GBP Monthly highs: €1.15, $1.31, AU$1.81, NZ$1.96, C$1.72

November was marred by further Brexit chaos, with the pound ricocheting off each Brexit development in dramatic fashion.

Initially this saw Sterling enjoy broad gains through the first half of the month as progress was made towards finalising the UK-EU withdrawal agreement, ultimately culminating in Theresa May’s cabinet signing off on a deal.

However the backlash to the agreement was immediate, with the pound nosediving in mid-November as two cabinet members -including Brexit Secretary Dominic Rabb- resigned in protest of the deal.

The weeks that followed saw GBP exchange rates trade fluctuate wildly as the UK government finalised the deal with the EU, while opposition to the agreement continued to build at home.

This included a particularly volatile week at the start of December where the UK government suffered a number of defeats in parliament, forcing May to publish the full legal advice on the deal and granting MPs a greater say on the final deal.

Looking ahead, the 11 December looks set to be a key flashpoint for GBP exchange rates this month as MPs vote on whether to reject May’s Brexit deal.

Investors are bracing for a dramatic swing in the pound following the vote, with a recent Reuters poll of economists forecasting that a vote to reject the deal could see Sterling immediately slump as much as 2.75%.

Conversely, should Theresa May be able to win over MPs, the poll suggests GBP exchange rates stand to climb as much as 3.5%.

Outside of Brexit, investors are likely to largely ignore UK economic data, with only the Bank of England’s December policy meeting potentially eliciting a response from markets if it strikes a hawkish tone with its forward guidance for 2019.