-
Theresa May's push towards a softer Brexit should boost the pound significantly.
-
Markets are enamored by the softest Brexit possible, so her Chequers agreement and the subsequent white paper on Brexit are traders' ears.
-
A likely interest rate hike from the Bank of England should also provide support for the pound.
-
Some analysts now forecast that the pound could rise as high as 1.41 against the dollar by the end of the year, an increase of close to 7% from its current level.
LONDON — Theresa May this week made it as clear possible that she wants Britain to pursue a soft Brexit, keeping the country tied closely to the European Union, while remaining outside its formal boundaries.
The prime minister's Brexit agreement at Chequers — which triggered the resignations of Brexit Secretary David Davis and Foreign Secretary Boris Johnson — and the subsequent white paper on her Brexit position cemented, for the first time since June 23 2016, a coherent plan for leaving the EU.
Politically, May's move towards a softer Brexit is unpalatable for many within the Conservative Party, but the proposals are a breath of fresh air for investors after more than two years of near-total uncertainty about the future shape of Britain's relationship with the EU.
As such, this week marked the start of a completely new phase for the British pound, one that could see a significant appreciation in its value going forward.
It isn't just greater certainty over the shape of Brexit that could drive the pound higher. The rising likelihood of an interest rate hike from the Bank of England at its next meeting in August is also set to boost the previously downtrodden pound.
Some analysts now forecast that the pound could rise as high as 1.41 against the dollar by the end of the year, an increase of close to 7% from its current level.
Markets InsiderDeutsche Bank, which made that forecast, backs a combination of "the movement toward a soft Brexit from May, the lack of effective challenge from the Brexiteers and a Bank of England hike in August," according to a report from Bloomberg this week.
This view is one shared by Sharmin Mossavar-Rahmani, the CIO of Goldman Sachs' investment management division, who in June said: "There is a 10% appreciation potential there," when discussing the pound.
Markets have been unequivocal in their belief that a soft Brexit is the best option for the UK, with the pound generally appreciating on developments that suggest a softer deal, and tumbling on signs of a harder deal.