GBPUSD hits 3 week high as UK EU transition deal agreed

Brexit Secretary David Davis, together with Chief EU negotiator Michel Barnier announced on Monday that a transition deal had been struck between the EU and the UK ahead of the key EU Summit this Thursday. Under the deal the UK will continue abiding by EU laws for the 21-month post Brexit period but will have no say in the decision-making process.

The EU and Britain have made good progress on certain aspects of the Brexit negotiations, however other area such as the Northern Irish border require more work. The UK has succumbed to almost all of the EU’s demands as Davis & Co. are so desperately keen to move forward to the next phase – the post Brexit trade deal. 

This includes a backstop agreement for Northern Ireland remaining in the single market in the case that no other solution is found. Prior to the news GBP/USD was seen drifting lower, hitting a nadir of $1.3914. 

The announcement that the transitional deal had finally been agreed, sent the pound charging 1% higher to a 3-week high of $1.4088, as the deal removes a layer of uncertainty for UK businesses.

GBP/USD has since eased back to $1.4038 in acknowledgement to the fact that the transition deal, whilst perhaps the most positive piece of news for the pound since the Brexit referendum, is not an all winning solution. 

The transition deal itself remains dependent on a Brexit deal being reached and although this is clearly a step in the right direction, it is by no means a guarantee.

Pound traders will now look ahead to UK inflation data due for release on Tuesday at 09:30. Whilst CPI is forecast to decline in March to 2.8%, down from 3% the previous month, a surprise to the upside could see sterling make a move on $1.41 before advancing to resistance seen around $1.4150.

FTSE heading to 7000?

Soaring sterling has put pressure firmly on the FTSE, which was already sliding, prior to any significant rise in the pound, thanks to heavy falls on Wall Street. 

The FTSE is over 1.3% lower across Monday, trading at its lowest level in over a year and whilst resistance at 7060 is holding for the moment any further increases in sterling could see the FTSE target the psychological level at 7000.

Facebook drags Wall Street lower

Wall Street has opened sharply lower, dragged down by Facebook and the tech sector. The Dow is off over 331 points whilst the S&P has sunk 1.3% and the Nasdaq 2.2%. There has been little respite for US markets over the past week, as volatility continues to be the name of the game. 

Last week political issues and trade wars were the biggest cause of concern, this week investors are looking nervously towards the Fed meeting on Wednesday, but now a 6% selloff it Facebook will capture the limelight at least for today’s session.

Facebook is experiencing its worst trading day since 2014 amid yet another row over data mismanagement. This is certainly not the first time that Facebook has found itself at the centre of accusations over violated rules, as UK based Cambridge Analytica was able to harvest its data. 

News of this data exploitation comes hot on the heels of concerns over how Facebook was used by Russian propagandists ahead of the US elections. How Facebook responds to these issues over the coming weeks will be crucial. 

Users and regulators alike will need reassuring that Facebook is committed to high standards on content and platform security. Failure to do so could see regulatory rules start to impact on its advertising business, which is also its main source of income.