GBP surges on rumours Spain and Netherlands want ‘soft Brexit’

The pound was able to climb higher on Friday thanks to USD weakness and rumours of support for a ‘soft Brexit’ amongst some EU nations.

The pound starts the week on solid ground today, with gains of 0.2% versus the euro and 0.1% versus the US dollar. GBP/EUR is now trending at €1.1265, while GBP/USD is up to US$1.3755. GBP/AUD isn't faring so well and is stuck around opening levels of AU$1.7315, as is GBP/NZD at NZ$1.8917. GBP/CAD has ticked 0.2% higher to CA$1.7117.

Read on to find out which developments in the US have helped to keep a fire burning under the pound on Friday…

What’s been happening?

Weakness in the other majors, largely due to the approach of key US data in the afternoon, allowed the pound to make strong gains on Friday.

Also boosting Sterling was a report suggesting that Spain and the Netherlands were open to a ‘soft Brexit’, and had agreed to work together in an attempt to sway other EU officials to agree upon a deal that would keep the UK as closely linked to the EU as possible.

Combined, these two driving factors allowed GBP to make gains in the region of 1% versus many of its peers.

The euro also benefited from the weakness in USD, with anticipation ahead of the key data making markets reluctant to buy not only the US dollar but also the highly risk-sensitive Australian dollar, New Zealand dollar and Canadian dollar.

This euro appeal meant the GBP/EUR exchange rate could only record a fraction of the gains seen versus other peers during the session.

The US dollar was weak ahead of the day’s inflation data, but remained on the downtrend even after the core inflation figure revealed an unexpected acceleration in price growth.

While this strongly boosted the odds of an interest rate hike in March, markets were perturbed by the latest diplomatic crisis embroiling the White House, after was alleged that President Donald Trump had used highly derogatory language to describe a number of countries.

There is some concern that the fallout from this latest incident could distract the White House administration from its policy aims, and also shows that the President has not softened his stance on immigration.

What's coming up?

Today looks set to be a very quiet data day, which could leave political news and developments as the main driving force behind the GBP/EUR and GBP/USD exchange rates.

The only UK data due out today are the Rightmove house price figures for this month, although only a fairly strong deviation from the trend would be likely to cause any jitters for Sterling.

Meanwhile Eurozone trade balance figures for November are the only data of note for the currency bloc, while there is nothing at all on the US data calendar.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.