Pound hits highest level since Brexit vote

Sterling has been gaining this morning with the Pound rising to its highest level against the US dollar since the day after the EU referendum back in the summer of 2016. The currency appreciation has weighed on the FTSE 100 a little with the index making a slow start to the week and pulling back around 10 points after Friday's record close.

GBP/USD moves close to 18-month high

If truth be told this morning's gains for the Pound against it most widely traded peer, the US Dollar, are more down to weakness in the latter rather than strength in the former. The Greenback is coming under fire from all angles whilst the US celebrate a bank holiday in memory of Martin Luther King, with a trade-weighted US dollar index hitting its lowest level since 2014. There's little by the way of fresh catalysts for the latest bout of weakness, with the drop seemingly more a continuation of the downtrend that has driven the Buck for the best part of a year. A Trump bump remains clearly evident in the stock market with records tumbling with almost alarming regularity on the NYSE and NASDAQ, but the surge higher in the US dollar that occurred in the weeks following his election has well and truly reversed, with the USD index set for a 9th monthly decline since his inauguration.

1.38-1.40 a key line in the sand

The fundamental backdrop for the UK and US is complex and multi-layered at present with a myriad of factors seen as imparting both positive and negative forces on both Sterling and the US Dollar at present. Putting this on the backburner for the moment and focusing on technical analysis, the charts are currently at a very interesting level indeed. The region from 1.38-1.40 for the GBPUSD has proved pivotal for the past 25 years, acting as support and attracting buyers on 3 separate occasions before being smashed through following the EU referendum. Black Wednesday, when the UK's decision to hastily exit the ERM caused the Pound to tumble saw a low close to 1.40 once the dust had settled before a recovery took hold. The region once more attracted buyers following the drops seen after the bursting of the .com bubble in late 2000 and the 2008 financial crisis but the unexpected victory for "leave" in 2016 saw a clean break lower. Technical analysts treat a breakout such as this as a major development and the market is now retesting the breakout zone once more. A failure to move cleanly above 1.40 could see further weakness ahead but should the market recapture this level then the outlook from a purely technical point of view will increase markedly going forward.

Carillion collapses into liquidation

An approach to the High Court early Monday morning for compulsory liquidation has seemingly spelt the end for Carillion, one of the government's biggest contractors. The firm has more than 43,000 employees and with numerous subcontractors and smaller businesses below, the collapse threatens to have far-reaching consequences. A failure to agree a rescue package after last-minute talks with the Cabinet Office and bankers over the weekend has sealed the fate of the Wolverhampton-based company that has racked up more than £900m in debts and has a large pension deficit of £587m. The news shouldn't come as too much of a shock with the company's share price plummeting by 90% on Friday, leaving a market cap of just £61m compared to £2bn back in 2016. Compared to the aforementioned debts and pension liabilities it is not hard to see why the firm can no longer operate as a going concern. The public purse could well take a hit from this with Carillion the biggest manager of military bases for the Ministry of Defence and also providing facilities management services for hospitals, schools and critical work for HS2 - the large rail infrastructure project. Whitehall spokesmen have stated that the government may take contracts in-house or use other firms that were working with Carillion in an attempt to see the contracts through to completion.