Pound rallies as a Brexit transition deal is announced
In January 2018, the pound regained lost ground and was even trading above $1.40 for the first time since Brexit.
Sterling remained above $1.37 in the weeks that followed, spurred on by the anticipation of a Brexit transition deal, expectations of another Bank of England rate hike and a weak dollar, caused by Donald Trump’s tariff threats against trade partners.
On 19 March, the EU and UK announced there would be a 21-month transition period, which sent sterling soaring. The pound gained as much as 1.1% against the dollar, reaching a three-week high of $1.40. Sterling also climbed 0.8% against the euro, trading above €1.15 for the first time since the snap election.
Sterling continued to gain on the back of the agreement, trading at post-Brexit highs of $1.43 on 16 April.
But suddenly, Britain’s currency fell off, declining nearly 3.5% to $1.39 against the dollar in ten days. The trigger for the sell-off was suggestions that the Bank of England would not be raising interest rates, despite the fact the UK economy had only grown 0.1% in the first quarter of 2018.
Cable reached a four-month low, trading at $1.35, on 3 May after pro-Brexit ministers announced they would be demanding a clean break from the EU customs union – a direct challenge to May’s tendency toward compromise.
Despite a plunge to $1.32 towards the end of May, sterling remained trading close to $1.34 in the month that followed and returned to normal volatility levels.