Derek Halpenny, European Head of GMR at MUFG, suggests that from the low on Wednesday to yesterday’s high, the pound advanced by 3.2% versus the US dollar as broader risk sentiment improved and the dollar weakened on the back of the FOMC announcements on Wednesday evening.
“The BOE minutes released yesterday from its meeting also included the view that the next move from the MPC would be to raise the official rate.
Still, the bigger news that are likely at some point come back to undermine the pound was the clear upturn in focus on the economic risks related to ‘Brexit’. The referendum had the potential to “delay some spending decisions and depress growth” and the MPC also stated that the uncertainty was a “likely driver of the decline in sterling”.
That seemed pretty clear and while we understand the rebound fuelled in large part by dollar selling, there is a high risk that Brexit will quickly come back into focus once US dollar sentiment stabilises. Given the view expressed by the MPC yesterday, markets will be certainly sensitive to any evidence that Brexit uncertainty is hitting economic activity. We see little further upside scope for the pound from here.”
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