GBP/USD inter-markets: Brexit over-optimism?

Despite the daily pullback, Cable remains well on its way to close its second consecutive week for the first time since mid-November.

The Sterling remains on a positive path for the time being, partly supported by the recent weakness that has been hitting the greenback particularly after Trump’s inauguration, and partly following increasing optimism in response to alleviated concerns of a ‘hard Brexit’ scenario.

The latter has gathered traction after the conciliatory speech by PM Theresa May, and was reinforced after the Supreme Court ruled against the government regarding Article 50.

Furthermore, auspicious results from the UK docket have somewhat confirmed the solid UK fundamentals, another source of GBP strength.

UK yields are showing a very positive start of the year, advancing for the second session in a row and then again, sustaining the upside move in the Sterling.

However, it still seems premature to adventure the extent of the current up move, as a ‘hard Brexit’ outcome from the negotiations to leave the European Union remain so far based only on ‘good intentions’ from both parties, and this is not enough to ruled it out just yet. True, UK fundamentals remain strong, although the exit from the EU is still on the papers, and the impact on the domestic economy is so far a matter of futurology.

The divergence in policies between the Federal Reserve and the Bank of England remains a tough barrier for GBP-bulls in the medium to longer terms, which added to the Brexit issue, it should suffice to leave the cautious tone intact around GBP for the foreseeable future.