The Pound hypersensitive to Brexit headlines

On Saturday, it was confirmed that Brexit negotiations have been extended for a further month after enough progress was made in the recent talks. EU's chief negotiator Michel Barnier will be in London this week with his British counterpart, David Frost, in Brussels next week ahead of the EU summit. In a joint statement following their call, Prime Minister Boris Johnson and European Commission President Ursula Von der Leyen both agreed that 'hope for common ground on the most contentious issues could be found'.

The news has been seen as positive on the market and Sterling has firmed its position for now. The overall consensus remains the same, in that a thin-deal would be agreed by the end of this month, but a no-deal is still hovering at a 50% chance. This morning, investment bank Goldman Sachs reported they believe a thin-deal would agreed by early November with a full package delivered by year end. This type of outcome would propel the Pounds value by 2-5% across the board. 

We believe current rates are favourable for Sterling sellers (all things considered) and are worth hedging against if there are exchanges in the pipeline. Momentum is on the Pounds side for now though and we may see small improvements across the board from here. However, if last week is anything to go by, daily volatility could be extreme in the weeks to come. Two newspaper reports had the power to force the Pound to fall by 1% and gain by the same figure a few hours later. Any headlines on the fisheries issue and we can expect £ to become erratic, as it seems this is the key to breaking deadlock. 

Economic data is likely to be overshadowed by Brexit developments this week with a pretty quiet week for the UK anyway. That is until Friday, where GDP figures will hopefully show a big bounce-back from mainly Q2 results. Data from August is set to show a the continued v-shaped recovery and anything less will hamper Sterling. There are also policy meetings on Thursday from both the UK & EU which will create market volatility.

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