Pound rallies, are GBP investors underpricing the risk of a no-deal Brexit?

Philip McHugh August 26th 2020 - 2 minute read

The pound struck higher on Tuesday, with the currency finding some bullish support in spite of rising fears the UK is headed for a no-deal Brexit.

Sterling appears to be consolidating these gains so far this morning, with GBP/EUR buoyed at €1.1134 and GBP/USD stable at $1.3150. GBP/CAD is flat at C$1.7336, while GBP/AUD and GBP/NZD hold steady at AU$1.8270 and NZ$2.0067, respectively.

Coming up, the focus today looks to be on the latest durable goods order figures from the US. Will another positive reading last month help to boost the US dollar?

What’s been happening?

The pound strengthened through yesterday’s trading session, with GBP bulls seemingly out in force despite any clear positive catalyst of movement.

The upside in Sterling also came in spite of the growing risk of a no-deal Brexit and the Confederation of British Industry’s (CBI) report that the UK’s retail sector is shedding jobs at its fastest pace since the financial crisis.

The euro was also buoyed on Tuesday thanks to some better-than-expected economic releases from Germany.

These saw Germany’s second quarter contractions in GDP revised slightly lower, while the IFO business climate survey reported another improvement in economic sentiment this month.

At the same time, the US dollar came under selling pressure on Tuesday, as easing trade tensions between the US and China as well as coronavirus vaccine optimism damped demand for the safe-haven currency.

What’s coming up?

In the spotlight today we have the latest US durable goods release.

Economists are forecasting another robust expansion in goods orders last month as economic activity in the US continued to improve, with an upbeat reading potentially helping to bolster the US dollar later this afternoon.

In the UK, GBP investors will look to a speech by Bank of England (BoE) Chief Economist Andy Haldane for fresh impetus today.

Haldane has previously been fairly bullish in his outlook for the UK’s economic recovery this year, something which could provide another boost to the pound if he strikes a similar tone today.

Meanwhile, in the absence of any notable Eurozone economic releases, the euro may struggle for support today as Europe’s coronavirus resurgence remains a key risk for the single currency.

Written by
Philip McHugh

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