Sterling took another hit over the weekend following comments made by UK Chancellor Phillip Hammond who stated that the UK may be forced to change its “economic model” if it is locked out of the single market.
This caused Sterling’s value to plummet once again, with loses against the EUR, USD and NZD. GBP/EUR rates dropped below 1.13, before a recovery just above this threshold and once again has put further pressure on those clients holding the Pound.
Sterling had already found itself under pressure last week, following comments made by UK Prime Minister Theresa May regarding her plans for a ‘Hard Brexit’.
Despite these obvious fears Theresa May is committed to getting the best deal possible for the UK in terms of leaving the EU but stated that we will not be keeping part membership. This means that trade deals and immigration rights will need to be negotiated, which is ultimately causing a huge amount of market uncertainty.
Market uncertainty is a currencies killer and this is why the Pound is fighting an uphill battle. Talk of Brexit and how we will facilitate this is likely to drive investor confidence and in turn the Pound’s value for months if not years to come and therefore I am not anticipating a major upturn for Sterling in the short-term.
It may be that the Prime Minister is trying to give herself a strong bargaining position ahead of negotiations with the EU but either way we just don’t have enough information to hand to make a firm decision.
The Pound has been walking something a tightrope for some time now, with any improvement short-lived due to a lack of any real investor confidence. This is why I have been suggesting that clients take advantage of short-term opportunities because I just don’t feel that the Pound can make any sustainable improvement against the EUR, NZD and in particular the USD under current market conditions.
A lot of focus in the UK surrounds the upcoming Supreme Court ruling, regarding whether the triggering of Article 50 needs to be ratified by MP’s.
We anticipate a result any day now and those clients holding Sterling will most likely be hoping that the High Court’s ruling is backed up, as it may well lead to a ‘softer Brexit’ than Theresa May is targeting. The MP’s will want concrete information regarding how the government expect to facilitate our exit and as such, may well look to keep some sort of relationship with the EU, particularly in terms of free trade.
Whether or not this is feasible is difficult to say but any talk of a ‘softer Brexit’ will help to alleviate some of the pressure on Sterling and we may see it gain some traction in the market.
I still don’t expect an aggressive spike and I stick with my opinion that any improvement should be taken advantage of, as sustainable I do feel any positive momentum will last.
Looking ahead and it’s a busy week for UK economic data. Today we have Bank of England (BoE) Governor Mark Carney’s speech, which is likely to affect Sterling’s value. Carney has not always been particularly bullish regarding the UK’s economic prospects following our decision to leave the EU but his tone has softened of late, so any talk of economic prosperity is likely to help push the Pound’s value back up.
Tuesday is likely to be the main focus with UK Prime Minister Theresa May giving a speech, where she will outline further details regarding how the government hope to facilitate our Brexit, so expect increased market volatility for Sterling following this.
There is also a host of inflation data released tomorrow, followed by the UK’s official Unemployment figure on Wednesday, which is expected to be higher than last months.
Finally we have UK Retail Sales figures on Friday, which are expected to remain the same at 0.2%.