With Sterling suffering amid “EU Threats” and “Brexit noise” this report looks ahead at the big events for today, the most significant of which are the Bank of England's interest rate decision, the press conference that follows and their inflation report.
The table below shows the difference between the high and low for a number of Sterling currency pairs in the last 3 months:
|Currency Pair||% Change||Difference on £200,000|
It has been a frustrating start to the month for those holding Sterling, as fresh EU threats and a lack of clarity from the UK government has led investors to question the optimism they appeared to show towards the end of January.
The “threats” in question, at the route of Sterling’s recent fall from grace, stem from a European commission document exposing the EU’s plans to restrict the UK’s access to the single market during the transitional phase should Britain go back on the terms agreed regarding freedom of movement.
This could be seen as a form of insurance for the single block’s members and highlighted once again that the EU negotiators might well be holding all the cards.
I remain fairly confident that once the so called “Brexit Noise” will be replaced by clear facts later on in the year, investors will begin to back the Pound once more. Until then, those looking to buy foreign currency should be wary they are locked in to a short-term market.
It prompted a string of key influencers to press for further clarity on what kind of insurances PM May intends to bring to the table to protect the future outlook for the UK economy. Business secretary Greg Clark confirmed that at present, Britain cannot confidently inform UK PLCs on what kind of relationship it will have with the European Union as there are no real guarantees in place. Furthermore, the European Central Bank have begun to pressure UK based banks to apply for an EU license now if they intend to maintain their access to the Eurozone, leading 8 major banks to begin to undertake the formal steps so far. Leading Japanese cooperation’s based in the UK are also asking for more clarity. The multi-billion pound institutions, mostly leading brands in the car industry will be sitting down with the PM and finance minister Hammond. With an apparent economic exodus already beginning to take shape, Sadiq Khan’s warnings of a lost generation may well have started to resurface in the minds of investors.
Since, PM May has struggled to galvanize her government. Her comments yesterday morning, promising to be “robust” in her dealings with EU negotiators did very little rekindle appetite in the Pound sitting at pivotal levels against its major currency counterparts.
That opportunity may well come this afternoon, with the Bank of England’s monetary policy decision and inflation report scheduled for midday.
The markets will be watching closely as hints towards an interest rate increase in the first half of this year will most likely lead investors hungry for higher yields to switch their funds into the Pound, thus strengthening Sterling’s value. Uncertainty from Brexit will no doubt be holding governor Mark Carney back but in the grand scheme of things I think inflationary pressures may force his hand.
If Carney does nod to inflation remaining a clear concern I expect Sterling holders to be in an excellent position to trade. Reuters released this morning that the Bank of England plan to raise rates in the near future as long as UK growth continues to outpace forecasts in the build up to Brexit.
When the BoE last raised rates back in November, sterling gained as much as 1.5% against the Euro. That is an extra 3,400€ on a £200,000 transfer. I wouldn’t be surprised to see similar movement today.
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