Investors, traders and common folk alike – we’re all on a roller coaster ride called Brexit. Ever since the Brexit vote, the pound has been down and up and down and up and down. It has never recovered fully since that vote and it doesn’t seem to be settling any time soon. With every advance or retreat in the negotiations for Brexit, the pound either experiences a sharp rally, a sudden drop or, what some might call a ‘skid’ at the bottom.
Brexit negotiations earlier this month encouraged a rise in the pound, only to be followed by a drop to almost two U.S. cents below that earlier high. Cautious investors booked profits after that sharp rally but knew it couldn’t last and it didn’t. That hurdle in the negotiation process sent sterling rallying to as high as $1.3521 earlier in the day, and to a six-month high against the euro, on investor relief that an EU summit later in December will clear the talks to move forward to trade and transition arrangements.
But with Britain’s economy still facing headwinds, traders were quick to take profits on sterling, pushing it down the day. Sterling dipped to as low as $1.3356, down almost 0.9 percent on the day. Against the euro, it slipped 0.8 percent to 88.06 pence, having earlier strengthened to 86.90 pence. “There’s a sense here that we’re just moving on to the next issue. Have we really done anything more than kicking the can down the road a little bit?” said Societe Generale macro strategist Kit Juckes. “We could see more upside in the pound in the coming months but as it was before, the road ahead is bumpy and that will be reflected in the currency markets,” Erlam added.
RBC strategists said Brexit negotiations aside, the economy remained in a fragile state, with the Bank of England’s November rate hike seen widely as a “one and done” move. So, as the negotiations continue and the uncertainty as to how the UK will land weighs heavily on the pound, there will be lots of movement. That movement, like a roller coaster, will end at some point but until then, buckle up for a bumpy ride.