Pound rebounds as Brexit Treaty text ready; Can PM May whip up support?


Despite a heavy sell-off in early trade, the pound has surged almost 100 points from its low, as investors react to Michel Barnier’s most recent comments. Reports from Michel Barnier that the main text of the Brexit Treaty is ready to present to the UK cabinet on Tuesday, picked the pound off its lows and back above $1.29. All that remains is for Theresa May to muster support from her cabinet. This will not be an easy task for the PM, which explains why the pound hasn’t rallied further. Theresa May’s cabinet has voiced doubts over her Brexit plan from the start with resignations as recently as Friday. The pressure is on Theresa May to push this Brexit deal through and the pound is doubting whether she has the political strength to do it. As a result, sterling has not made an attack on $1.30.

We expect the pound to trade a volatile path over the next 36 hours as Theresa May presents the Brexit treaty to her cabinet. The outcome of Brexit depends on Theresa May’s ability to win support. Signs that she is able to draw her cabinet together behind her and the Brexit deal could see a sterling push through $1.30 before opening the door to $1.3150. Failure by May to get the Brexit deal through could see sterling dive back towards $1.27 resistance tested at the end of October.

With so much attention on Brexit, traders are only expected to give UK jobs data on Tuesday a brief glance, even though UK average weekly earnings are expected to ramp up to 3% for the three months to September. This would be a solid increase from 2.7% the previous month.

Global Equities Drop, Dollar Soars

The weaker pound was offering some support to the FTSE, which although in the red was faring better than its European counterparts. Gains in resources stocks were eventually overshadowed by a general global weakness in sentiment which was then aggravated further by a softer open on Wall Street. A rally in the price of oil as Saudi Arabia fuelled hopes of a supply cut lifted energy stocks on both sides of the Atlantic. However, weakness in US tech stocks, lingering concerns over trade plus a stronger dollar ensured the Dow, the S&P and the Nasdaq were all on the back foot at the start of the week.

The dollar hit a high of $97.58, its highest level since June last year. The dollar also surged to a one year high versus the euro as Italy prepares to resubmit its spending plans to Brussels.