Sterling Jumps as Traders Remain Optimistic About Brexit

The GBP/USD pair jumped in the Asian session today as traders gained confidence that the UK would reach a deal with the EU on Brexit. Yesterday, reports emerged that a new deal would be reached as early as on Monday.

The UK voted to leave the EU in 2016. Since then, the tough decision has been on how to leave the union. Those who believe in Brexit believe that the UK should cut all ties with the union and use the WTO rules for trade. The argument is that such a deal may make the UK more competitive. Those who opposed Brexit hope that a new referendum may happen. If it won’t, they hope that a soft Brexit deal will be ideal.

The latter argue that without the UK being in the EU, the competitive advantage of UK businesses may be lost. In this, they argue that these companies may shift their manufacturing to the EU. The pro-Brexit officials believe that without the deal, these companies may be able to source their raw materials in a cheaper manner which may make the goods they produce more affordable.

To be clear, no one really know the impact of a hard, soft, or no deal Brexit. This is because no other country has ever left the EU.

The new hope is that the UK may remain within the EU temporarily after the Brexit day arrives. The biggest headache for the EU and the UK is on how to keep the Irish border open. Bloomberg said that:

U.K. and EU diplomats said that intense negotiating over the next five days could result in a provisional agreement on the issue Monday. However, while there is positive momentum, many issues remain unresolved, they said.

The chart below shows the trade pacts that exist within the European Union.

Meanwhile, the Office of National Statistics (ONS) is today expected to release the GDP numbers. Traders expect the numbers to show that the GDP in September grew by 0.1%, which was lower than the previous growth of 0.3%. The manufacturing production is expected to grow by 0.1%, which will be higher than the previous slump of 0.2%. In addition, the industrial production is expected to grow by 0.1%, equal to the previous month.

Other than Brexit, the country continues to face the challenge of the auto sector. The standards that were started this month will continue to affect the sector. Just last week, Range Rover announced that its shipments for September slumped by more than 30%. This trend was reported by other auto manufacturers like Daimler, VW, and BMW.

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