The pound has slowly but surely been rising against its counterparts these last few days. It’s surprised many, as uncertainty appears to have generally increased, however, one element of the equation has actually seen a rise in certainty. This is the fact that time is running out and it’s now more likely than ever that Article 50, the legal text that confirms the timeline for our departure from the European Union, will have to be extended to create more time to develop a new deal. Such an extension would have to be agreed by all 27 EU members but, given what’s at stake, it’s realistic to see it being approved. The premise for the pound pushing higher comes from the fact that an extension gives Theresa May more time to see cross-party views and ideas which will potentially lead to a more rounded deal which importantly has more support throughout Parliament, hopefully 230 MPs-worth of support!
The pound has rallied hard against the single currency, up toward the €1.14 level while $1.30 is providing strong resistance against the greenback at present. How far can this move go? Only time will tell, literally. The prospect of extending Article 50 for a few months is no doubt a positive, however, the potential for ‘no deal’ is still very present. One thing’s for certain now – if the market has got ahead of itself and for whatever reason Article 50 is not extended – the pound is going to receive an almighty smack in the face. Support levels for the major pairs come in a $1.25 and €1.10. There’s no doubt these would immediately be tested if no extension is possible.
Today’s economic calendar is an interesting one. The health of the UK consumer will be revealed this morning with the latest report on retail sales due for release at 0930. Additionally, Canadian inflation numbers will be released at lunchtime followed by US manufacturing data and consumer confidence numbers.
Have a good weekend.
Written by Viv Savani. 8:45am, January 18th 2019
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