British Pound (GBP/USD) Surges to New High

Chart of GBP/USD - British Pound vs US Dollar
Chart of GBP/USD – British Pound vs US Dollar – Source: TradingView

The British pound surged against the US dollar on Wednesday, extending its recent rebound and establishing a new two-month high. In the process, GBP/USD reached back up to its key 200-day moving average, which it has not touched since May of last year. Recent Brexit pressures have threatened to weigh heavily on sterling. But the pound has been on the rise even after the UK Parliament voted down Prime Minister Theresa May’s Brexit deal just last week. GBP/USD actually bottomed out earlier than that with a double-bottom pattern in mid-December and early January. And it’s been on a sharp rebound and recovery ever since.

The Brexit Factor

Helping to fuel sterling’s recent rise ahead of the March 29 Brexit deadline have been a few different factors. The prospect of a ‘no-deal’ Brexit is getting dimmer and optimism is rising over a “soft” Brexit. These factors have both helped to boost the pound. There’s also even a possibility of a second EU referendum. This would be another public vote on whether or not the UK should leave the European Union. In the event that this happens and the public chooses instead to stay in the EU, sterling could get a very substantial boost. All of this still remains up in the air, though, at least until Parliament meets again early next week. At that time, British lawmakers will vote on Theresa May’s revised plan and amendments.

Jobs and Interest Rates

Meanwhile, jobs data out of the UK turned out better than expected on Tuesday. Wage growth beat estimates and employment rose to a record high. This helps open a potential path to higher interest rates, which would also be supportive of the pound. The Bank of England makes its interest rate decision in two weeks (see our Market Events & Earnings Calendar). There is a distinct possibility of a rate hike then to help combat further sterling weakness and rising inflation. And there’s an even greater likelihood of this happening given Tuesday’s positive jobs report.

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