This Pound Sterling report discusses the latest situation with the Pound, as well as Brexit talks and the factors that could affect GBP exchange rates this week. The table below includes market movements for a number of GBP currency pairs over the last 7 days:
|Currency Pair||% Change||Difference on £200,000|
Sterling exchange rates had remained relatively range bound since the start of the year, but certainly closed the week on a high as Finance Ministers from Spain and Holland were reported to have put forward a case to keep the ties with the UK as close as possible post Brexit.
The news drove the Pound to the high 1.12s against the Euro and more interestingly to 1.37 against the Dollar, the highest levels we have seen since the Brexit vote.
It certainly tees up a potentially very volatile week ahead with so many uncertainties looming.
It seems to me, that ever since PM May fudged her way through the first round of Brexit talks, the markets have struggled to fully back the current government’s ability to pull together and negotiate positive terms with the EU in time for the October deadline.
Last week’s prediction of a “Lost Decade” from London Mayor Sadiq Khan would have done little to rekindle appetite for the Pound, forecasting a potential 3.3% drop in growth across the board within the UK economy by 2030 should Brexit talks go sour. Equally, according to National Centre for Social Research’s latest poll, the UK public is growing more and more worried with the impact of Brexit as time goes on, with 56% of those inquired feeling the economy will be worse off further down the line, that’s up from 46% from this time last year. If this line of thought seeps through to the markets, there is a strong possibility Sterling will fall out of favour with investors, its long term value strongly being pulled into doubt.
A popular view among our clients looking to buy foreign currency back in December was to wait and hope the Pound would benefit from the perceived momentum from the breakthrough in the first round of Brexit talks, with the UK government hitting the ground running at the start of 2018. It hasn’t panned out that way however and I would be slightly concerned the markets might begin to see the Pound as a time bomb ready to blow.
May’s Cabinet, and indeed the Pound are clearly locked in to a serious race against the clock. They have 10 months to formulate a clear and reasonable solution to the Irish border and set out a favourable transitional deal that will not only match all of the 27 EU member states expectations but also protect the UK’s public interests, the failing of which will likely lead to rejection from the British parliament who are to vote before the final deal is signed.
Although I would take Farage’s calls last week for a potential 2nd referendum with a pinch of salt, he has without doubt added significant importance to that final parliamentary vote – If parliament do not agree to May’s proposals in the final stages, it will send the whole process back to square one. Bookmakers have already slashed their odds for a second Brexit vote to 5-1. It adds yet another layer of uncertainty the mix. I remain doubtful we will see any kind of sustained push from the Pound against its major currency counterparts until the government get through the vote unscathed.
The one thing currently saving the Pound is the potential interest rate rise at some point this year from the Bank of England (BoE). Variable wage growth and inconsistent inflation data were the main factors holding the BoE back throughout 2017 but the trend has seemed to turn in the right direction for both over the last few months. Tuesday’s inflation data release is likely to provide a good opportunity if you are looking to buy foreign currency as the slow fall in inflation as projected might encourage the BoE to take matters into their own hands.
For more information on how future data releases could affect your currency requirement, call our team of currency brokers on 01494 725 353.
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