GBP Rallies to a 5 Week High in Wake of May's Brexit Speech

The pound has rallied to a 5-week high as the US dollar comes under pressure.
Dollar weakness is the driving force in the markets this morning as the greenback retreats after the first few days of Donald Trump in the White House. So far the new president has stoked protectionism but offered little detail on the good stuff – pro-growth infrastructure spending, stimulus etc. That’s ensuring the dollar starts the week on the back foot, trading at its weakest since early December. Gold is trading at a two-month high as safe haven assets are bid. We’ll be looking for more details on spending and growth plans in the coming days, which could revive the long dollar trade.

The pound is enjoying the boost, with cable surging towards $1.247, its strongest level in over a month. The last time sterling was this strong against the dollar was on December 19th. The pound’s rally over the week has seen it gain 5 cents on the dollar, or around 4% since Theresa May’s landmark Brexit speech last Tuesday. Her tough stance has so far been positive for the pound, but there is a long way to go before we see Article 50 triggered.
Sterling strength looks set to weigh on the FTSE, which is expected to open at least 40 points lower this morning, although European equities look soft across the board.

It’s another big week for the pound, with the Supreme Court ruling due on Tuesday at 09:30 and the first reading of Q4 GDP on Thursday, also at 09:30. The Supreme Court ruling is very important as from a position of relative clarity since May’s speech, the judges could help to make things less certain by throwing open the triggering of Article 50 to MPs to vote on. That could see pressure come back on the pound. It’s interesting now that the hard v soft Brexit debate has gone a bit quiet and we are now talking more about certainty versus uncertainty, whatever the position of the government.

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