Comment - Sterling - what next?

Comment - Sterling - what next?

Chris Towner

Director at JCRA

Views 293

Comment - Sterling - what next?

22.10.2019 01:30 pm

Volatility in the FX markets often hinges on uncertainty. With all the noise surrounding Brexit, which reached a crescendo over the weekend, it is therefore unsurprising that sterling has been subject to significant movements.

In the last 10 trading days, the pound has rallied from 1.11 against the euro to trade at 1.1650, a 5% gain. Meanwhile, against the US dollar we have seen sterling climb from 1.22 to 1.2950, a rally of 6%. This has been welcome news for UK importers as well as holidaymakers planning trips abroad.

There are two things here worthy of note. Firstly, despite the prime minister’s apparent progress on his journey to ‘get Brexit done’, there is still a long way to go. Yes, he deserves some recognition for persuading the EU leaders to drop the UK-wide backstop, but his true battle was always going to be on the domestic front. To win here he will need to convince MPs not only that this is the best resolution, but that it is the only one possible.

The second point to note is that a negotiated deal with the EU will bode well for the euro as well as for the pound. Sterling still remains heavily undervalued, however we would expect it to rally more strongly against the US dollar than against the euro. 1.20-1.25 in GBPEUR could quite easily be reached if everything goes swimmingly but 1.40-1.45 in GBPUSD is just as obtainable.

So what next for sterling?

So far, sterling has been well supported by a perceived reduction in the probability of a no-deal Brexit. Both parliament’s postponement of the meaningful vote and the prime minister’s letter to the EU requesting a delay have reinforced this sentiment.

Should parliament eventually vote in favour of the renegotiated withdrawal agreement, we would expect a further relief rally for the pound. On the other hand, a delay until January would mean more of the same uncertainty. This would put pressure on sterling and may even force the Bank of England’s Monetary Policy Committee to cut rates, especially given the recent weakening signs in the labour market and lower inflation. And then there is of course the potential for a general election. The prime minister’s strategy may work here, as he would be able to garner support from those who voted for Brexit along with those who feel a negotiated deal is indeed the right compromise.


It remains to be seen whether Mr Johnson’s success with the EU leaders will be matched on the home front. One thing that does seem certain is his desire finally to take the UK out of the EU as soon as he can. He now has some momentum and so too has sterling.

Latest blogs

David Orme IDEX Biometrics ASA

From card issuers to retailers: how biometric smart cards benefit the entire payments ecosystem

With the roll-out of biometric fingerprint authentication smart cards, consumers will soon be able to make payments feeling more confident about the heightened security their new cards will offer. However, it’s not just consumers that stand to Read more »

Samuel Rosenberg, Varun Ratta, Chris McMillan, and Sarah Roesener Oliver Wyman

Navigating The Revenue Tech Universe

Boards Expect Near-Term Disruption From Emerging Technologies “Revenue Tech” refers to the plethora of technology application providers of analytics, insights, and decision-making support software aimed at fueling top-line and margin growth. At its Read more »

David Villaseca Oracle

Are Banks really responsible in a digital world? Challenges on United Nations

This week, we held a discussion on Responsible Banking on the 25th United Nations Climate Change Conference (COP25). It connected different experts from Bank of Spain, Santander, etc, with the coordination of CEU. Green and Responsible Banking Read more »

Steve Morgan Pegasystems

What Trends Will Shake Up the Banking Tech Sector in 2020?

In the past year, we’ve seen technology play a huge part in shaping the banking industry landscape, from emerging fintechs to new solutions facilitated by Open Banking to the latest AI tools. With such progression happening throughout the sector, we Read more »

Bas Lemmens Pivotal Software Inc

Agile holds the key to competition and growth in financial services

The pace of change in the financial services sector is such that traditional business models are no longer viable, and firms that have stood the test of time must adapt in order to survive. A recent Gartner report found that by 2030, 80% of heritage Read more »

Related Blogs

Alex Chen FIME

Transit Ticketing in APAC – key takeaways from Singapore

Last month, we visited Singapore for Global Mass Transit’s (GMT) annual Transit Ticketing & Fare Collection APAC conference. Rapidly becoming the event in the APAC transit industry’s calendar, this year’s show didn’t disappoint. Read more »

Ed Molyneux FreeAgent

Northern Rock Ten Years On: Financial Crisis Changed How Britain Works Forever

The collapse of Northern Rock ten years ago, and the ensuing financial crisis, has profoundly changed how people in the UK work to this day. With unemployment across the UK sharply rising in 2008, that year gave birth to the UK’s freelance economy. Read more »

Chris Skinner The Financial Services Club

The First Global Platform Play from Ant Financial

One company that is seeking global domination is Ant Financial. The company has an open stated intention to reach two billion users by 2025.  The way in which they’ll achieve that is through local partnerships, and many of those have been started Read more »

Chris Skinner The Financial Services Club

How Does a Financial Curator Make Money?

After my blog yesterday, about banks having to move from being control freaks in a proprietary operation building everything to becoming collaborative partners in an open marketplace curating everything, I was asked: “how do you make money out of Read more »

Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel