British Pound in Demand as Soft Brexit Hopes Rise

Talking Points

- Hints that the UK is willing to pay a larger ‘divorce bill’ have increased the possibility of progress in the Brexit talks that resume later this week.

- That has strengthened the British Pound but there is plenty of scope for disappointment.

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

The British Pound is climbing against the Euro and the US Dollar ahead of Brexit talks that resume later this week. The advance has come on hints that the UK might be willing to increase the divorce bill it will pay to leave the EU to €60 billion, opening the way for progress and, eventually, discussions on the future trading relationship that the UK wants with the bloc.

If all goes well, the possibility of a so-called Soft Brexit will continue to spur demand for the Pound but the chances are high that the hopes will be dashed, reversing the currency’s recent gains.

Chart: EUR/GBP 10-Minute Timeframe (November 3 – 7, 2017)

Chart by IG

One problem for the Pound is that recent UK economic statistics have been weak, reinforcing the view that last week’s increase in UK Bank Rate was a one-off and that interest rates will now stay on hold for an indefinite period.

Data released Tuesday by the British Retail Consortium showed that UK retail spending fell last month at the fastest rate for any October since 2008 as consumers curbed their buying of non-food goods in the face of rising inflation. Retail sales values slid by an annual 1.0% on a like-for-like basis, which strips out changes in store size, compared with a 1.9% rise in September.

However, there was more upbeat news from the Halifax mortgage lender. Its figures showed UK house prices rose in the three months to October at their fastest pace since February.

--- Written by Martin Essex, Analyst and Editor

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

Follow Martin on Twitter @MartinSEssex

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