Third week of gains for the pound after volatile few days

After a volatile week, the British pound was on course for its biggest monthly gain since February.

It was partly accounted for by a drop in the euro which encouraged investors to buy the pound.

The single currency fell more than half a percent after figures showed that inflation across the euro zone remained at 1%, well below the European Central Bank’s target rate of 2%.

That was interpreted as bolstering the chances of the ECB taking action at its next policy meeting in the coming weeks.

Sterling, which fell to a two and a half year low against the dollar this month, could see bigger moves when the parliamentary session gets under way in the coming days.

“Next week will be a crucial week for the Pound,” Justin Doyle, Investec Treasury said.

“If we finish the week with little progress in stopping a hard Brexit, then I think sterling will come under significant pressure. While there is an element of excitement for market watchers, it is also certainly a very worrying time for Irish businesses.”

Ricardo Amaro, Economist with Ulster Bank, pointed out that, aside from political moves, traders will continue to watch the economic fundamentals in the UK, which are less than stellar.

“The CBI’s retail sales survey revealed a sharp decline in August. Moreover, this week’s results of the GfK Consumer Confidence index also showed a broadly-based drop in August, with the headline measure easing to a six-year low. This drop in confidence poses a downside risk to the outlook for consumer spending, a key area of the UK economy particularly in face of weak trends in manufacturing and exports,” he explained.

As of Friday evening, the pound was trading at 90.3 pence to the euro.

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