Wednesday, 19 October 2016

GBP/USD exchange rate hits an eight day high

This morning has seen the GBP/USD cross rise to its highest level in eight days with the currency pair hitting $1.2324, as you can see from the graph below.

GBP/USD graph

The pound rose after a lawyer for the UK government said that parliament would need to ratify any type of deal to remove Britain from the European Union.

The lawyer representing the government, James Eadie, is currently undertaking a the High Court challenge over who has the rights to trigger Article 50 and begin official divorce proceedings. Mr Eadie said yesterday that parliament and not just the Conservative party would ''very likely'' have to approve any exit agreement.  

His comments have given Sterling a small boost and even allowed the pound to shake of news that job creation had slowed slightly in the three months to August.  It would seem the markets are looking past the jobs data, as the numbers have shown very little has changed in the labour market since the referendum result in June.


Is this the start of the pounds recovery?

I think it is unlikely, although yesterday's comments have given the pound some support, I don't think it is the start of a sterling rally.

The markets are still concerned over the impact a hard Brexit will have on the UK economy. Unless the courts rule that parliament have to approve the triggering of Article 50, I think the pound will continue to be dragged down by the uncertainty over the UK's exit.

The general feeling is that the pound will continue to fall and the rise we have witnessed over the past twenty-four hours is only temporary. What the rise could do, is give investors an opportunity to restock their selling positions and if triggered could spark another huge sterling sell-off, just like the flash crash we saw a couple of weeks ago.

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