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