Tuesday, 22 November 2016

The pound holding onto yesterday's gains against the dollar.

The pound is holding around $1.2450 against the dollar this morning, with markets still taking stock of yesterday's surprise move which saw the GBP/USD cross climb over two cents during the London trading session.

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GBP/USD graph

The spike we saw yesterday caught everyone off guard, and in my last post I mentioned the rise was a bit of a mystery as I could not find anything to support why the pound was climbing across the board.

It would now seem the pound and UK economy received a huge boost following some comments made by UK Prime Minister Theresa May.

What did Theresa May say?

Theresa May gave investors some much needed confidence as she vowed to address the growing concerns that the UK could fall of a "cliff edge" when it leaves the euro bloc, while also hinting at some kind of transitional deal.

Back in September May suggested she would pursue a "hard Brexit" which would see Britain give up its access to the single market. However, her comments yesterday lean towards a change in stance, with markets now hopeful of a softer and slower approach.

Why would a transitional agreement be better for the pound?

It would give the UK time to create a new trading agreement with the European Union, once the formal negotiations have been completed. It is likely Britain will still have some kind of access to the single market while a new agreement is established, and removes some of the uncertainty over the long term impact Brexit will have on the UK economy.


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