May to begin Brexit negotiations

After trading hours yesterday, MPs voted that Theresa May can begin Brexit negotiations as of today. 498 MPs voted for and 114 against meaning the PM won by a majority of 384. The PM also confirmed that she will be publishing her proposed Brexit white paper today for the UK public to see. This publication could cause major volatility for Sterling exchange rates depending on Theresa May’s stance in regards to the single market.

This is just the start of the Brexit negotiations and MPs will now start to debate how Brexit will finally look when Theresa May invokes Article50 on the 31st March. This story will continue to dictate Sterling exchange rates for months to come and this wont be the last vote before the March deadline. Therefore clients should expect Sterling exchange rates to remain volatile and should outline any upcoming Sterling transfers to their account manager as soon as possible.

Why did the Pound gain momentum throughout yesterday’s trading session?

According to Sir Ivan Rogers, the former ambassador to the EU, senior European leaders believe Theresa May is bluffing and the UK will not walk away from a trade agreement with the EU (single market). Due to the bold statement investor confidence rose within the UK and the Pound increased in value throughout the afternoon trading session making foreign currency cheaper to buy. The Pound increased by 0.85% against the euro, 0.6% against the US dollar and 0.5% against the Australian Dollar.

How will Sterling exchange rates react to Super Thursday?

At the end of every quarter and the first Thursday of the following month, the Bank of England release their latest interest rate decision, quarterly inflation report, minutes from the latest interest rate decision, update to the asset purchase program and this is followed up by a speech from Governor of the Bank of England Mark Carney. Each release has the potential to shift Sterling exchange rates by cents and because the releases are all released at the same time this causes further volatile as investors try to second guess more than one data release. Today is known as ‘Super Thursday’ for the UK.

The interest rate decision should be a non-event as it’s widely expected all nine voting members will vote in favour of keeping interest rates on hold at 0.25%. Furthermore the asset purchase program should also remain unchanged, again this should also be a non-event.

Global inflation has been on the rise due to the price of oil rising and it can be argued that UK inflation has been rising due to the asset purchasing program (Q.E). Consequently the quarterly inflation report could give a boost to Sterling exchange rates. Furthermore if Governor Mark Carney hints that the Bank of England are likely to hike interest rates in a bid to counteract rising inflation we could see a further boost for Sterling. However I expect the Governor will also be quizzed in regards to Brexit and depending on his stance this month this could cause pressure on the Pound.

Super Thursday has the potential to create volatility for Sterling exchange rates, and clients may benefit from getting in touch with their assigned broker to mitigate risk. Call our trading floor on 01494 725 353 or email me at drl@currencies.co.uk.

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