With Brexit negotiations set to be the key factor in the Pound’s value for the foreseeable future, we look ahead to how talks are affecting exchange rates. We also cover some of the key data due over the next week and what they may mean for Sterling. The table below displays the market movements for a number of currency pairings yesterday:

Currency Pair% ChangeDifference on £200,000
GBPUSD0.7215%$2020 USD
GBPCAD0.8294%$2900 CAD

Phase 2 of Brexit Talks set to cause volatility for the Pound

The European Council has stated that Brexit talks between the EU and the UK have advanced sufficiently enough to launch the new phase of negotiations.

A definitive withdrawal agreement must include the terms in the transition stage and also a policy statement defining the framework for the future trade relationship between the EU and the UK.

Eurozone and Inflation and GDP to impact the Euro

The EU seeks a framework similar to the trade agreement with Canada  which also reflects the UK ‘s desire to exit the single market. Britain also wishes to have the services sector included into the trade agreement.

There are however points of contention. Chief EU Negotiator, Michel Barnier  has warned that a Brexit transitional deal is “not a given”. He also stated that the UK and the EU are struggling to agree on several aspects of the deal. This is putting in danger the March deadline which is in place to provide much needed clarity to the public.

The main points of contention is lifetime rights of residency to EU citizens who arrive in the UK following Brexit , but before 2021 and having to agree to new EU laws with the UK having to accept these laws with no power to negotiate.

I would not expect Brexit talks to go smoothly and this does have the potential to cause Sterling weakness.

May & Merkel meeting could create short term opportunity for Sterling sellers

Theresa May is due to talk today with German Chancellor, Angela Merkel. Germany is the engine room of the bloc and as such if Merkel is forthcoming in regards to building a trade relationship with Britain this could cause some Sterling strength. I think this could well be the likely outcome.

UK Data Releases of consequence -  Retail Sales, Inflation, Unemployment, Average Wage Growth and GDP make for a busy period

UK Retail Sales data is released today and measures the total sales from retail stores. It is a clear indication of consumer spending and is of particular interest considering the disparity between average wage growth and inflation. There is expected to be a rise to 0.5%, but if this is not achieved the pound could suffer.

The Inflation Report Hearing is due on Tuesday. This hearing is held by the Treasury committee to look at policy, administration and expenditure of the Bank of England, the Financial Conduct Authority, HM Revenue & Customs and other public bodies. If expenditure is higher than expectations this could be seen as damaging to the UK economy and subsequently could cause weakness for the Pound.

Wednesday brings unemployment data and average earnings both of which are key to the health of the UK economy. Average wage growth is particularly interesting considering current inflation levels. There was a recent decline in inflation so should we see a rise in average wage growth this could mean the UK economy is fairing better than expected which could cause a slight spike in Sterling value.

GDP is released on Thursday and is possibly the broadest measure of UK economic activity. Keep a close eye on this release as this does have the power to move the markets.

For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.


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