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Where next for the pound?

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

These are busy times, for politicians and currency traders alike. And especially pound sterling traders.

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The oldest actively-traded currency in the world has certainly been giving traders and investors a run for their money as it has reacted to every twist and turn in the lengthy - and still ongoing - Brexit saga.

According to the Financial Times, sterling has now traded in an intraday range of 1% or more for nine consecutive sessions. That is the longest such stretch since July 2016 in the aftermath of the Brexit vote and its third-longest of the past 10 years. The average daily range across the eight sessions from October 10 to 21 is 1.6%, which is almost double the relatively calm currency’s historical average of the past three decades.

The latest turn of events last night, which saw parliament supporting the prime minister’s deal to withdraw the UK from the EU - even if the House of Commons also voted against an accelerated timetable for the UK’s departure from the EU - saw the pound edge back from the highs of the week, although still close to its highest level since May. We’ve said before that the pound is an important indicator to keep a very close eye on. We also know that the twists and turns that have sent sterling on its rollercoaster ride are far from over.

The pound has been making history, back on 10 October it made its first meaningful break above its 100-day moving average for the first time since spring. Five days later it closed above its 200-day moving average for the first time since May. All eyes are on the $1.30 level and whether the pound can gain enough momentum to push through that level - and, most importantly, stay there.

But can we really read anything into it? So many times of late, the pound’s rise has been noted and called out as a bullish signal, or evidence of a meaningful shift - until it has edged back once again.

As market watchers know, there are plenty who think more upside for the pound is possible, but these people are equally aware of the downside risks. To misquote Donald Rumsfeld, such is the scale of the known unknowns and indeed unknown unknowns about Brexit; think the Letwin amendment, think the expectation that the PM would call a general election last night, that calling it with any certainty is certainly impossible.

Now, the latest expectation this morning is that if the EU agrees to a delay until January then Boris “I’d rather die in a ditch” Johnson will push for that general election, having already “paused” his Brexit bill.

These are highly uncertain times. And that makes life tricky for us all - especially as investors. There are questions aplenty and, in many cases, various possible answers, depending on the outcome. But to start the ball rolling and take a big picture view, Tom Stevenson’s latest look at the outlook for the 12 months ahead, makes for invaluable reading.

Many of you joined us for a live webcast and seized the opportunity to put your questions directly to Tom. If you missed the chance this time around, you can still catch up with the questions and answers and read Tom’s Outlook in full here.

Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates.This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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