News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
More View more
Real Time News
  • RT @KyleR_IG: Certainly a highlight of my career. If I was smart enough, I would have made a wisecrack about #Evergrande. #earthquake http…
  • RT @FxWestwater: Australian Dollar Forecast: Evergrande, PBOC, Risk Trends, BoJ on the Radar Link: https://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/asia_am_briefing/2021/09/21/Australian-Dollar-Forecast-Evergrande-PBOC-Risk-Trends-BoJ-on-the-Radar.html?CHID=9&QPID=917708&utm_source=Twitter&utm_medium=Westwater&utm_campaign=twr https://t.co/L0…
  • Do you know how to properly Identify a double top formation? Double tops can enhance technical analysis when trading both forex or stocks, making the pattern highly versatile in nature. Learn more about the double top formation here: https://t.co/t9FlspUVZz https://t.co/9FeeIfuozg
  • The Bank of England should scrap the last of its quantitative easing plans and start preparing for an increase in interest rates. All 9 members of the shadow monetary policy committee said the Bank should end the QE programme early, with almost £50bln left - The Times
  • The Nasdaq 100 gains modestly after Monday's sharp losses, but sentiment remains cautious ahead of the FOMC rate decision. Get your market update from @Tams707 here:https://t.co/HLDN2JGfAf https://t.co/mRhlLUBGq6
  • Ethereum continues its sharp slide, currently down more than 4.7% on the day $ETHUSD #Ethereum https://t.co/BoTAiljU0y
  • Rising energy prices weigh on European policymakers as consumers fear higher prices, carbon dioxide shortages (CO2), and cold winter. Get your market update from @Tams707 here:https://t.co/HLDN2JGfAf https://t.co/tWhlMrXN4G
  • US President Biden: - Will discuss a trade deal with UK PM Boris Johnson - I do not want to see a closure of Irish borders
  • AUD/USD continues to trend lower ahead of tomorrow's FOMC meeting. Further $USD strength could bring the August low into play $AUDUSD https://t.co/X3zfpYN8Qe
  • Nasdaq Ekes Out Small Gain As Focus Turns to FOMC, Uber Flies On Bullish Guidance $NDX $UBER #trading #FED https://t.co/1uL1Ao3o3v
Brexit Briefing: Brexit to Drive GBP Now UK Rates Have Risen

Brexit Briefing: Brexit to Drive GBP Now UK Rates Have Risen

Martin Essex, MSTA, Analyst

Talking Points

- The progress (or lack of it) in the divorce proceedings between the UK and the EU is likely to be the main driver of the British Pound now the post-referendum cut in UK interest rates has been reversed.

- Any further rate changes are now some way away so traders can safely move their focus from monetary policy to the Brexit negotiations.

What Does the Fourth Quarter Hold for the Pound, Equities, Oil and Other Key Markets? Find out here

The Bank of England’s decision to increase UK Bank Rate for the first time in more than 10 years, reversing the precautionary cut made after the Brexit referendum in June last year, leaves traders in the British Pound free to concentrate on the Brexit negotiations rather than UK monetary policy.

After raising the benchmark rate to 0.5% from 0.25%, the bank said any further increases would be “at a gradual pace and to a limited extent”, suggesting extreme caution: it is not inclined to hike rates further while UK economic growth remains underwhelming. This was emphasized by the fact that both of the bank’s deputy governors, Jon Cunliffe and David Ramsden, voted against it.

That means market expectations of just two more quarter-point rate increases over the next three years, taking Bank Rate to a still-modest 1%, are probably about right. If monetary policy is therefore on the back burner, the progress of the Brexit talks between the UK and the EU is therefore likely to be the principal driver of the British Pound in the months ahead.

If so, the equation is straightforward: steps, however small, towards a deal – or at least towards an agreed transition period – should be positive for the Pound while setbacks should be negative. Indeed, it is clear that the bank will be watching the negotiations closely as it said that “considerable risks remain”, including those associated with Brexit.

Therefore, any setbacks – particularly if “no deal” becomes increasingly likely – will make the bank even less inclined to tighten UK monetary policy further, magnifying the downward pressure on the Pound.

For more, listen in to tomorrow’s webinar hosted by DailyFX’s Nick Cawley at 1130 GMT: UK Markets Look Ahead – Will GBP Dance to Brexit’s Tune Again?

However, there is one other event that will become more important in the days to come: the UK budget on November 22. The budget is a major set-piece event in the UK and it is possible that Chancellor of the Exchequer Philip Hammond will decide to ease fiscal policy after years of austerity that have made the government less popular and arguably weakened economic growth.

Any major loosening of fiscal policy could make the bank more inclined to tighten monetary policy in response, however unlikely that now seems after the bank’s “dovish hike”.

Politics more generally could also influence the Pound given the current weakness of Prime Minister Theresa May’s position as head of a party without a majority in the House of Commons. While the markets traditionally favor her Conservative Party over the opposition Labour Party, they might welcome a general election if it was thought likely that would result in a stronger government.

Chart: GBP/USD Five-Minute Timeframe (November 2, 2017)

Brexit Briefing: Brexit to Drive GBP Now UK Rates Have Risen

Chart by IG

Markets

Brexit Briefing: Brexit to Drive GBP Now UK Rates Have Risen

Upcoming UK/EU Event Risk (November 3, 2017, All Times GMT)

Brexit Briefing: Brexit to Drive GBP Now UK Rates Have Risen

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

For help to trade profitably, check out the IG Client Sentiment data

And you can learn more by listening to our regular trading webinars; here’s a list of what’s coming up

Check out our Trading Guides: Several new ones are now available including Forex for Beginners, Building Confidence and Traits of Successful Traders

Like to know about the Traits of Successful Traders? Just click here

Or New to Forex? That guide is here

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES