Pound sterling remains highly volatile after hitting last-year peaks

Posted 15 March, 2019

The pound sterling has been moving up and down lately, while now it maintains heavy volatility ahead of the UK's departure from the EU slated for March 29.

According to the market data, the pound-to-US dollar rate gained about 2% by late mid-week posting the peak since June 2018 once the UK MPs refused to vote for no-deal Brexit. This situation is, in fact, positive, as it reduces the risk of random leaving of the union, but investors in their turn hardly can make long-term pound forecasts.

For now, the overall situation mostly does not change after the vote against no-deal Brexit since there are 15 days left until the deadline.

Meanwhile, investors are waiting for the voting on the delay of EU leaving, which can entail certain risks for the pound. The market mainly expects that Theresa May will get a positive vote, though Brussels is unlikely to revise the position and enable the UK to take a breath. All these developments mean that it will be unknown how Brexit will pass until the official report about the positive vote in the Parliament with further acceptance by the EU representatives.

For now, the market actually knows just the fact that the UK is striving to avoid no-deal Brexit, as the agreement with the EU would help to eliminate a number of risks for country's economy and support confidence of the investors. As a result, there are many questions that remain without an answer. In particular, it is unclear whether Brexit gets a delay and how Brussels may react to this move.

It is hard to predict anything. Strategic investors have faced challenges as this situation does not let them plan further actions in the market. Thus, their position may be adjusted in line with fresh reports. Another important issue is to understand whether the UK retain the status of a safe place for business after the political turmoil. Further pound movements are unclear in this situation, though one of the scenarios is that investors can start selling pound on the market reports while waiting for the voting results, following the EU decision on the delay.

Along with the pound, the euro has also been in the spotlight this week. The European currency improved after the drop caused by the pigeon statements of the ECB's Chairman Mario Draghi a week ago. Specifically, the euro touched the bottom once ECB noted that external factors should be considered as the source of challenges for the global economy in 2019.

The European Central Bank has a limited number of instruments to boost economic impulse, while the EU economy is slackening now. The global problems are also said to have an impact on the European economy.

Previous forecast

18 March, 2019 17:30

← Brexit: Will Theresa May eventually have luck in Parliament?

The last week was highly unstable for the pound sterling. The British currency followed mixed trends over the week. At the same time, the market bet on the current week as it was essential for the Brexit process. The UK MPs have made it clear lately that they would not accept no-deal Brexit and would not revise the departure date, but also rejected plans for the second referendum.

Brexit: Will Theresa May eventually have luck in Parliament?

Next forecast

13 March, 2019 17:49

Euro about to face new challenges →

The potential problems of the euro or even a collapse of the euro-area financial system have been urgent topics since the PIGS crisis and Greece debt problems. Moreover, the famous populist Marine Le Pen planned to shelve the euro and return French franc, declaring a default on sovereign debt. It seems that the euro can face new problems.

Euro about to face new challenges
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