Investors flock to safety of US dollar as pound sentiment is hit by worries following EU comments

Last week saw the pound fluctuate wildly following the Bank of England’s (BoE) latest policy meeting and comments from the EU’s chief Brexit negotiator, Michel Barnier.

The pound is holding steady at the start of this week, with GBP/EUR stable at €1.1279 and GBP/USD trading narrowly at US$1.3838.

Sterling may tumble again this week should Brexit continue to cause a headache for markets or if markets react poorly to the UK’s latest inflation figures.

The pound was hit by volatility last week as markets reacted to the BoE’s first policy meeting of the year as well as the latest developments regarding Brexit.

Sterling suffered some early losses on Monday as concerns over Brexit and the unity of the UK government prompted investors to shy away from the currency.

Investors reacted poorly to Downing Street’s insistence that the UK would leave the EU customs union post-Brexit, something that Barnier warned would make trade barriers with the EU ‘unavoidable’.

However the pound rallied hard in the second half of the week following the BoE’s latest rate decision.
While the BoE chose to make no alterations to its monetary policy this month, it was significantly more hawkish in its outlook for the coming year.

GBP soared as BoE Governor Mark Carney suggested the bank may tighten monetary policy ‘earlier and by a somewhat greater extent’ than it previously forecast.

However the pound was unable to stabilise at its best levels as Carney added that any tightening would be dependent on positive progress in Brexit negotiations.

Sterling sentiment then nosedived on Friday when the EU’s Barnier warned that a transitional Brexit deal was ‘not a given’ and that the UK would need to do more to resolve some disagreements.
Looking ahead, the pound may be hit by more volatility if Brexit remains in focus, with the release of the UK’s latest CPI figures weighing on GBP as well if inflation drops as expected in January.

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* Information courtesy of Currencies Direct, Philip McHugh
The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information. This article was written by Currencies Direct.