The pound pushes on

Da­vide Ugolini, of Cur­ren­cies Di­rect, ex­plains how ster­ling is stand­ing its ground in the face of un­cer­tainty

Living France - - LES PRATIQUES -

Af­ter a stormy start to 2016, ster­ling de­fied grav­ity and en­joyed a spring bounce back as it traded at its high­est level against the dol­lar and the euro at the end of April. This is fairly sur­pris­ing as the gains posted by the pound ap­pear to com­pletely dis­re­gard the eco­nomic fun­da­men­tals. As a mat­ter of fact, in­vestors seem happy to ig­nore a spate of bad eco­nomic news out of the UK as con­cerns over Bri­tain leav­ing the EU have started to weigh on eco­nomic ac­tiv­ity. As the FTSE surged on the back of a re­bound in the price of oil, so did the pound in a very re­mark­able turn­around from the dark days in Fe­bru­ary. In­vestors turned pos­i­tive on ster­ling af­ter a very rocky start to the year. Weaker labour mar­ket num­bers with un­em­ploy­ment nudg­ing higher, slower wage growth and weaker con­sump­tion failed to stop the re­bound in the pound as in­vestors are more con­cerned with the pos­si­bil­ity of a Brexit.

Ster­ling sold off ag­gres­sively un­til the be­gin­ning of the spring and this was mainly due to the un­cer­tainty that the EU ref­er­en­dum is caus­ing among ma­jor in­vestors. Many thought that the pound de­pre­ci­ated too quickly and too fast, but Brexit fears were enough to scare in­vestors away.

Late in April, Barack Obama made a dra­matic in­ter­ven­tion in the UK ref­er­en­dum de­bate as he urged vot­ers to re­main in Europe. Obama de­liv­ered a per­sua­sive press con­fer­ence while in the UK, dur­ing which he in­sisted that Bri­tain would be at the “back of the queue” to ar­range a trade deal with Amer­ica in the case of a Brexit and urged the pub­lic to sup­port the con­tin­ued mem­ber­ship of the Euro­pean Union.

Traders cheered Barack Obama, who has sin­gle-hand­edly of­fered a ma­jor boost to ster­ling as traders are con­vinced that his com­ments will sway many of the un­de­cided vot­ers to vote to re­main in the Euro­pean Union, and his words will surely be used many times be­tween now and 23 June.

The sit­u­a­tion could still un­fold fur­ther in the weeks to come and the pound might again come un­der pres­sure as the de­bate en­ters its fi­nal stage ahead of the ref­er­en­dum day, and it serves as a re­minder of how a Brexit re­mains a piv­otal mo­ment for the UK and Europe. cur­ren­cies­di­rect.com

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