Why has the Pound gained so much value over the past few months?

Earlier this week the Pound was the best performing currency of all the major currency pairs after the feel-good factor surrounding the Pound continued into December from November. It’s worth noting that November is historically a good month for the Pound and last month Sterling gained an impressive 7 cents vs the Euro, making a €200,000 purchase over £10,800 cheaper.

The main reasons behind the Pounds strong run recently are what’s being called the Trump Train, the High Court’s ruling that Article 50 cannot be invoked without parliamentary approval, David Davis (Brexit Secretary) suggesting the Government may be prepared to pay to retain access to the EU’s single market and a raft of good economic data out of the UK, with Mondays Services PMI being a great example of this after the figure showed its biggest gain since January.

Whilst Sterling’s recent performance is great news for clients planning on making a currency exchange to buy a property overseas in Europe for example, it’s unlikely that news surrounding the UK economy will continue to be so positive. I do think that after such a bullish run the Pound’s value could be fragile at the current levels, after rising by so much in a short space of time.

Why is Sterling the worst performing major currency this week?

After the past weekend’s key Referendum in Italy, the currency markets have sprung a surprise once again after the Euro has begun to gain ground against the Pound throughout the week, despite the Italian PM planning on resigning within the next 7 days after losing a Referendum he initiated. This is mostly due to hopes of an Italian banking bailout, as that is likely to be what it will take to alleviate the Italian banking issues.

This positivity surrounding the Euro worked against the Pound, but Sterling has also fallen across the board. In the space of just 24 hours the currency has gone from being the best performer of the G10 complex, to the worst.

The reason behind Sterling’s decline over the past few days is that hopes of a rescue package for the Italian banking sector have pushed up global stock markets and bond prices, but most importantly UK bond prices have rallied substantially.

When UK bond prices rally, bond yields fall therefore the attractiveness of holding funds in the Pound diminishes, and this has pushed down Sterling’s value hence its turnaround in fortunes. Keeping in contact with your currency broker in times like this can be key as we’re here to monitor the markets on your behalf. I personally think it’s a good idea to inform your broker of both your upper and lower ‘worst case scenario’ desired levels.

What events are likely to drive Pound Sterling exchange rates this week?

I expect the ongoing High Court decision appeal by the UK government to continue to drive the Pounds value this year/beginning of next, and we won’t discover the full outcome until next month.

Tomorrow morning will see the release of Consumer Inflation Expectations. Analysts are expecting the release to show 2.2% so expect movement within exchange rates if the figure released deviates from these levels.

Brexit Update

Late last night MP’s voted in favour of initiating the Brexit process next year in March, which is in line with Theresa Mays initial plan. Whilst voting in favour of the proposal by a considerable margin of 372 (there were 461 votes in favour whilst 89 against), MP’s also backed a plan for the Government to publish a Brexit plan of sorts which will be subject to scrutiny.

Iain Duncan Smith referred to this move as the first time the majority of parliamentarians had voted to leave the EU. As of yet currency markets are relatively unmoved, but should any further developments occur regarding the Brexit conditions I think we could see the Pound impacted.

With Theresa May still set to invoke Article 50 in March, and with no plans for Parliament to block the request, the Pounds sentiment could be tested once again in the weeks ahead. Now is an important time to get in touch with your broker if you have an upcoming foreign currency requirement, get in touch today on 01494 725 353 or email jxw@currencies.co.uk if you require assistance in signing up.

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