This Sterling report discusses the start of the Brexit negotiations between the UK and the EU and looks at the potential impact on Sterling exchange rates. It also looks at factors that could affect the Pound exchange rates this week. This table shows the market movements for a number of GBP currency pairings in the last 30 days:

Currency Pair% ChangeDifference on £200,000
GBP/EUR3.6%€8,650
GBP/USD2.6%$6,760
GBP/NZD4.1%NZD $14,350

How could the Brexit negotiations affect Sterling?

We are just less than a year on from when the UK decided by a majority vote to leave the European Union. Talks finally got underway yesterday with the UK aiming to sets the terms on which Britain will the leave the European Union. The future as to how the talks will pan out is extremely unclear especially as we have yet to form a majority government.

The decision as to whether we’ll opt for a hard or a soft Brexit has not been made clear and for me this is one of the biggest risks to the value of the Pound as the negotiations commence. When the EU Referendum took place last year we saw the Pound drop against all major currencies in its biggest daily drop on record. The market panicked as the concern was that the UK would be leaving the single market and as yet even twelve months on nothing has been confirmed.

The Queen’s Speech was due to take place yesterday but has now been delayed until Wednesday and at the time of writing next year’s Queen’s Speech has been cancelled. The political landscape is currently very unsettled and as we saw on election night with the Pound falling by 2% against most major currencies the Pound has struggled to win back its losses from two weeks ago. Indeed, versus the Euro the Pound is close to its lowest level to buy the single currency since November 2016.

Brussels is looking to guarantee the rights of over 3 million EU citizens currently in the UK and also looking for the UK to pay billions in order to leave the European Union. The future of a free trade agreement has been put on hold and this could be months away from getting to the top of the agenda.

Brexit secretary David Davis is looking to form a ‘strong and special partnership’ with the European Union and Chief EU negotiator Michel Barnier has also claimed to want to agree a timetable for the discussions.

In the meantime our very own Chancellor Philip Hammond has stated that leaving the EU without having a deal in place would be a ‘very very bad outcome for Britain.’ The concern I have is that the talks will likely be made difficult and protracted as the EU has made its stance very clear in that it does not want to see the UK leave. Therefore, longer term I think we’ll see many problems for Sterling exchange rates in the months ahead.

Economic influences on Sterling this week

Bank of England governor Mark Carney is due to talk this morning and the likelihood is that the topic of interest rates will be discussed. With a 5-3 split in favour of keeping interest rates on hold this gave the Pound a small lift last week. The reason given is that as inflation is rising at 2.9% at the moment with the target at 2% this is becoming a real concern for the central bank and this is why we have seen the decision made.

Public Sector Net Borrowing for May is released tomorrow morning and although it is likely that politics and Brexit discussions will dominate the headlines this is likely to have a small impact on the Pound so make sure you keep in close contact with your account manager who will be able to keep you updated with market movement.

For more information on how unfolding events could affect your currency transfer call our currency brokers on 01494 725 353 or email me directly at teh@currencies.co.uk.

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