Will the Pound Gain with Signs of a Soft Brexit?

The British pound (FXB) (GBB) continued to appreciate against the US dollar in the first week of 2018, rising 0.41% against the dollar (UUP). Comments from UK Chancellor Philip Hammond about the possibility of keeping the Customs Union with the European Union drove investors to increase the probability of a soft Brexit. With most of the bad news surrounding a Brexit being priced in, any positive development could continue to help the British pound appreciate further.

The British equity markets (BWX), in line with the global markets, posted gains in the first week of 2018. The FTSE 100 index (EWU) closed the week at 7724.22, appreciating 0.47%.

According to the latest COT (Commitment of Traders) Report released on January 5, 2018, by the CFTC (Chicago Futures Trading Commission), speculators increased their bullish positions on the British pound last week. The total outstanding net positions increased from 12,676 contracts to 16,235 contracts for the week ended January 5, 2018. With the possibility of a soft BREXIT, investors could expect a higher value for the British pound.

In the current week, there are limited economic data to be reported from the United Kingdom. Price action for the pound could be influenced by the demand for the US dollar and any news surrounding the Brexit. Manufacturing production data are due to be reported on Wednesday, January 10, 2018, and are expected to increase 0.3% against the previous month’s increase of 0.1%. Overall, we can probably expect further gains in the British pound against the US dollar in the coming week.

In the next part of this series, we’ll analyze why the Japanese yen is unable to capitalize on the weakness of the US dollar.