Sterling has made gains over the past couple of weeks, with the Pound finding support against a host of major currencies.
The recent market volatility looks set to continue however, with UK Prime Minister Theresa May’s Brexit still awaiting approval by the House of Lords. The Pound gained support following the decision by MP’s to ratify it through the House of Commons and whilst the general consensus is this will be backed up by the House of Lords, a level of uncertainty still remains.
It’s for this reason that I have been suggesting to clients holding Sterling that they look for short-term opportunities, rather than hold out for long-term sustainable improvement.
Yes, there is no doubt the Pound has gained a foothold in the market but this is not the first time we’ve seen it make a move towards 1.20, only for market confidence to slip and the Pound to retract. This leads me to the conclusion that the UK economy remains extremely fragile in the eyes of investors and it won’t take a lot for this confidence to be shaken and the Pound will likely suffer as a result.
I do expect democracy to force MP’s hand when it comes to the triggering of Article 50 but this does not mean that we will not see further speed bumps along the way. There is already rumours that members of the House of Lords will be looking to force changes to the aforementioned bill and if this is true, then a delay in Theresa May’s March timeline is possible. This in turn would add to the current uncertainty surrounding the entire Brexit plan and as such the Pound is likely to hit another roadblock and we would see it dip against the other major currencies.
With no economic data for the UK yesterday, the major talking point was the Co-op banks decision to put itself up for sale. This was welcomed by the Bank of England (BoE), who will continue to monitor the banks “financial resilience” over the coming months.
The Co-op has struggled ever since its near collapse in 2013 but with interest from TSB, there is hope that it can build strength and become a cornerstone in the UK’s banking sector over the coming years.
Whilst talk of failing banks is hardly likely to inspire investors this may well be taken as appositive by the markets, due to the hope of increased stability in the future and this news may well have helped support the Pounds value yesterday and for the coming days.
Currency markets will react to key economic developments and as such any stability and growth in the UK’s financial sector is likely to support the Pound and we may see further improvements over the coming weeks as the situation evolves.
Looking ahead to the rest of the week and we have some key inflation data this morning at 09.30.
With inflation rising and a concern that it will exceed the government’s target of 2% this year, any major jumps in this sector will likely cause some market concern.
With costs rising due to the Pounds falling value over recent months, I believe inflation data over the coming quarter will have a significant impact on how Sterling performs and as such those clients holding the Pound should be monitoring this morning’s developments closely.
On Wednesday we have employment data, alongside the UK’s official Unemployment rate, so any figure outside the expected 4.8% will likely drive Sterling’s value.
Finally on Friday we have the latest UK Retail Sales figures. With the expected figure of 1% a major improvement on last months, I expect this to be largely factored into Sterling exchange rates over the coming days and could help support the Pounds recent rise.
We have witnessed the Pound rise and fall since the Referendum in June, and clients may want to make the most of this current high before the UK enters the negotiation stage in March. Call our trading floor on 01494 725 353 or email me here for a free quote.
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