The Empire strikes back: GBP rises above $1.40 for the first time since the Brexit vote
With all the talk of trading Bitcoin once again making the headlines but this time for all the wrong reasons, there is another currency which deserves a bit of attention. As 2018 begins the sterling has started to show that there is plenty of life in the old pound yet.
The Brexit vote result back 23rd June 2016 not only sent shockwaves around world but also took the legs from under the GBP which crashed to a 30 year low against the USD. Throughout the remainder of 2016 the sterling continued to suffer, hitting a low around $1.1487 with the infamous flash crash in October and closing the year at around $1.2348. In 2017 it made its best efforts to attempt a recovery and recover it did, not dropping below $1.2053 from February 2017 onwards. However, more surprises such as the UK general election result and concerns on where the Brexit negotiations were heading kept its fightback though impressive, capped with it hit a high of the year $1.3643 on the 20th September before falling back and then trading in the range between $1.3016 to $1.3577 for the rest of 2017.
But since the beginning of 2018 it has hit upon an impressive run and has risen about the $1.40 level and at the time of writing and is currently trading at $1.4091. These levels have not been seen by GBP since that fateful day on 23rd June 2016.
So what is behind this bull?
First of all, optimism that a Brexit deal will be achieved. There is now a general feeling the UK will mostly likely get a soft Brexit deal as opposed to the much feared hard exit. This belief and would be relief comes from the recent visit to the UK by French President Emmanuel Macron who has spoken of the potential of the UK getting a special trade deal though it won't be able to "cherry-pick" certain elements it may want.
It's not only France which is giving words of comfort to the UK as both Spain and Holland have said they wish to achieve a deal which will keep the UK in close ties to the EU.
Economic wise too are showing signs that the shadow of the Brexit vote is possibly vanishing with the UK labour market hitting a record high along with basic wage growth rising faster than expected.
This alongside the strong pound could help the UK tackle the problem of the high inflation it is currently experiencing, which is again enlightening hope among GBP bulls.
The other factor which may also be playing a part is the weak USD, which across the board is struggling against the majors with the US Dollar index at the time of writing currently trading around 89.51.
This could be the key factor, as though the GBP run against the USD is impressive, its gains against the EURO has been muted at best, with the EUR/GBP at the time of writing currently trading around 0.8753.
Whatever is the driving factors behind the Sterling impressive start to 2018, there will be many GBP bulls hoping that it will continue.