Last week the Pound had its best week against the US Dollar since October of 2009, as worries over a proposed ‘Hard Brexit’ eased.
The reason for the mitigation of investors’ fears was a ruling from England’s High Court last Thursday, as it was announced that the Government needs parliamentary approval before starting the Brexit process.
The decision was significant as in early October the UK’s Prime Minister, Theresa May outlined her plan for invoking Article 50 before April of next year, and the Pound subsequently dropped and lost around 5% through October on a trade weighted basis due to her plans which contributed to an already under pressure Pound.
The lead claimant in the successful legal fight to get Parliament to vote on when to invoke Article 50 (which will trigger the process of the UK leaving the EU within 2 years) is Gina Miller, an investment manager who works in the City of London. Whilst making herself particularly unpopular amongst some within the UK, she has offered those hoping for a stronger Pound some hope, and the Pounds recovery last week can be directly attributed to her self-invested legal fight.
Financial markets in general had originally hoped for the UK electorate to vote to stay, and since the Brexit vote the general preference within the sector is for the Brexit process to be long and drawn out, with lots of negotiations allowing for the UK to retain access to the single market.
Moving forward expect Sterling exchange rates to continue to be driven by sentiment, as Brexit related announcements carry more bearing over Sterling’s value than economic news releases do, which is why keeping in touch with your currency broker is important in the current climate.
Yesterday afternoon it emerged that a bag of Britain’s bestselling crisps is set to rise by 10% due to the Pounds recent drop in value. Walkers announced that the price hike is a result of the drop in Sterling’s value since the Brexit vote, which has pushed up their crisp manufacturing costs.
Last month Marmite hit the headlines for similar reasons, and now there’s talk of shoppers needing to fork-out more for everything from Birds Eye fish fingers to PG Tips according to Reuters. Rising inflation concerns are becoming an issue for the UK economy and a major headache for the Bank of England, who naturally will be hoping to avoid stagflation (a situation whereby inflation is high and economic output declines).
It is worth keeping an eye on the rate of inflation as the BoE has warned that inflation will rise from 1.3% this year to 2.7% by 2018.
Yesterday Europe’s biggest bank, HSBC warned of a dim outlook for British business next year, and urged the UK government to clarify the status of European Union workers in Britain. The bank will not be too concerned about its own position within Europe, as it owns a fully licenced subsidiary in France. Nevertheless, I do think those hoping for an insight into the UK economy in the upcoming future should take the warning seriously, as what HSBC decides to do may be followed by other banks which could threaten the UK’s position as a financial capital.
Outside of the US Presidential outcome in the early hours of Wednesday morning, I expect today’s Inflation Report Hearing at 10am to be one of the biggest potential market movers for the Pound this week. The Monetary Policy Committee will offer an overview of inflation levels and performance, and I expect inflation to be under the microscope due to high inflation concerns bought on by the steep drop in Sterling’s value this year. The (National Institute of Economic and Social Research’s (NIESR) latest GDP Estimate will be also be announced today at 3pm, with 0.4% the expectation for the past 3 months.
It will be interesting to see how the Pound performs today as overnight we’ve seen mixture of both good and bad news in the UK. UK hiring’s rose at their fastest pace in 8 months through October, and UK PM Theresa May is in the process of offering improved visa deals to India as she plans to limit the effects of the UK’s planned Brexit. Despite this upbeat tone, an influential think tank (The Institute for Fiscal Studies) has claimed that the prospects for the UK’s public finances has deteriorated by £25bn since the March Budget, owing to weaker prospects for the economy.
With a bleak outlook for the UK set to unravel unless a quick post-Brexit deal can be reached, Pound Sterling could be set for further losses in the months ahead. Why not get in touch with our brokers today to discuss the different options available to you. Call our trading floor on 01494 725 353 or email me here.
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