It’s been an interesting start to the month for the pound, with average daily movements of around 1% on both Monday and Tuesday. The UK currency started the week on the back foot after fears of a hard Brexit resurfaced, following the UK’s formal departure from the European Union on Friday night. As a result, sterling lost around 1.3% to both the euro and the US dollar on Monday.
However, sterling’s losses proved to be short lived as the currency staged a comeback on Tuesday, rising against most of the other major currencies. The move left market participants scratching their heads as there were no data releases of note and no political developments. Construction PMI numbers from the UK were slightly better than expected although still indicated a contraction within the sector. Hardly a reason to buy the pound. The rebound in the pound may have been the result of traders ‘buying the dip’ after sterling’s dire performance on Monday.
Market movement in the near term is likely to be driven by Brexit developments although economic data will also be closely watched. Services PMI data from the UK on Wednesday will likely have some bearing on the strength of the pound as the services sector accounts for around 80% of the UK’s economic output.