The Pound's gains are the FTSE's losses

The pound has rallied through $1.30 and is climbing towards $1.31 on growing optimism of Brexit being delayed. Labour signalling it’s support for blocking a no deal Brexit boosted sterling to its highest level since early November

The pound has rallied through $1.30 and is climbing towards $1.31 on growing optimism of Brexit being delayed. Labour signalling it’s support for blocking a no deal Brexit boosted sterling to its highest level since early November. We continue to see traders interpreting any headline pointing to the UK avoiding a no deal Brexit as a buy signal for the pound. However, an extension of Article 50 is not a solution to Brexit itself. This means that the rally in the pound could be short term and a case of buy the rumour sell the fact. 

Today’s rally in the pound comes despite business optimism taking another step lower to -23 in January from -22. Optimism in British factories continued to wane as Brexit uncertainty and concerns over slowing global growth hitting demand weighed on sentiment. The fact is there is still no agreed deal on how to leave the EU and this means there is a reluctance to invest.

With no high impacting UK economic data for the rest of the week, pound traders will remain glued to Brexit developments. Ministers are due to vote on Theresa May’s Plan B on Monday 29th February. 

The surge in the pound dragged on the FTSE, thanks to the high proportion of multinationals for whom a stronger pound represents a less beneficial exchange rate. Whilst European bourses traded comfortably in the black, and Wall Street opened higher, the FTSE waded deeper into the red. 
Wall Street kicked off trading  on the front foot, boosted by strong earnings and hopes that the US government shutdown could soon be coming to an end. 

Strong earnings & US shutdown chatter boost Wall Street
Strong releases from IBM, United Tech and P&G helped the Dow jump 250 points in early trade. Impressive figures from these firms has helped re-centre traders’ focus. Earnings are what matter and if the earning are strong then the market will rally. 

Ford is due to release its earnings after the closing bell.

Reports that the Senate will vote on Thursday on democrat proposals to end the government shutdown, are lifting sentiment. Whilst the US economic data drought, owing to the shutdown, means the markets are unsure of the exact impact of the shutdown, the general sensation is that it will have hit Q1 statistics hard. 

Euro steady ahead of ECB announcement
The euro pushed higher versus the dollar despite yet more disappointing data from the region. Eurozone consumer confidence improved by less than expected in January. Consumer confidence improved from – 8.3 to -7.9. With data from the region consistently coming in below expectations, the ECB could well put on a dovish display tomorrow


Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.