Monthly wrap: GBP – Pound rocked by Brexit uncertainty

Key takeaways:

–              Pound fluctuates on Brexit uncertainty.
–              New coronavirus restrictions also punish Sterling sentiment.
–              GBP Monthly lows: €1.07, $1.26, AU$1.75, NZ$1.90, C$1.68
–              GBP Monthly highs: €1.11, $1.32, AU$1.82, NZ$1.96, C$1.72

The pound suffered some dramatic swings in movement over the past month as the currency was dominated by Brexit headlines.

The most startling move in Sterling came in the first half of September, with GBP exchange rates plunging roughly 3% over the span of a week amidst rising fears of a no-deal Brexit.

This was mostly centred on Boris Johnson’s controversial Internal Market Bill, which seeks to break international law by altering the EU Withdrawal deal and resulted in the EU launching legal action against the UK.

However sentiment has markedly improved since then, with reports of positive progress towards a post-Brexit trade deal helping the pound to recoup some ground against many of its peers.

Also influencing GBP exchange rates over the past four weeks has been the UK’s worrying resurgence in coronavirus infections.

This resulted in the pound coming under further pressure as the UK government responded by announcing a raft of new restrictions on the hospitality industry, and warned that stricter measures may be necessary as the UK faces a ‘difficult’ six months.

Looking ahead, Brexit developments will undoubtedly continue to act as the main catalyst of movement in the pound ahead of the EU’s Brexit summit on 15 October.

This could result in some increasingly choppy trade in Sterling as talks are likely to go right down to the wire.

Should a deal emerge at the eleventh hour, then we will see plenty of upside potential in the pound, whereas the failure to reach a deal could see the prospect of a no-deal Brexit lead to a collapse in GBP exchange rates.

Also influencing Sterling sentiment will be the latest UK data releases, which may offer more insight into how the economic recovery is faring as the country faces a second wave of coronavirus infections and the prospect of escalating restrictions.

Any signs that the UK economy may have started to slow at the end of the third quarter may fuel concerns the country could slip back into a recession through the winter.