Pound Up Against Dollar, but Set for Speed Bumps Ahead on Brexit Worries

Forex
© Reuters.  © Reuters.

By Yasin Ebrahim

Investing.com – The pound continued to rack up gains against the dollar, shrugging off sinking hopes of progress on Brexit talks after Germany reportedly scrapped plans to continue negotiations, citing a lack of recent progress, according to UK media reports.

rose 0.49% to 1.3207. 

The German government scrapped plans to discuss Brexit during a meeting of EU ambassadors on Sept. 2, the Guardian reported. “Since there hasn’t been any tangible progress in EU-U.K. negotiations, the Brexit item was taken off the agenda,” the Guardian reported, citing an EU diplomat. The news comes as a blow to hopes that both sides will break the deadline in post-Brexit talks, which are set to resume on Sept. 7.

But the pound, which is up about 16% against the dollar since March has been moving in tandem with risk assets like stocks, shrugging off worries over the risk of a no-deal Brexit – the U.K. leaving the European Union without a deal. This resilience in the wake of sullied post-Brexit talks is unlikely to continue for a prolonged period of time, Morgan Stanely warned.   

Sterling “prior positive correlation with risk markets has started to fade, suggesting that even in light liquidity the market appears to be still closing historical short GBP positions,” Morgan Stanley (NYSE:) said.  “We think GBP/USD will be driven more by the GBP side of the pair in October/November when our economists expect more progress on the Brexit talks.”

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