The Pound has been decisively pummelled since the announcement of a Brexit vote in June. It’s certainly clear which results financial markets would have preferred as they have emphatically signalled their happiness and displeasure at key moments since the vote.
Last month the immediate statement by incoming Prime Minister Theresa May, and supported by the new Secretary for Exiting the European Union, David Davis, that we would not be enacting Article 50 until around the beginning of 2017 caused the Pound to rise more than 2% against all major pairings that week alone.
We are beginning to receive hints of further delays beyond this 2017 mark. Betting companies are favouring this being enacted in 2018 or not at all, with Sky Bet as an example running 6/4 odds on this occurrence.
At a briefing for Westminster journalists yesterday Downing Street declined to confirm that the article will be triggered at the start of next year. They only went as far as saying it will not happen before the end of 2016.
This situation is becoming eerily familiar to the Bank of England interest rate saga last year. Each month the decision to raise rates continued to be delayed, despite calls for hikes following promising UK economic performance figures at the time. The Pound would rise when there was an elevated anticipated of a hike, and would fall when such expectations were not met. This was a repeated pattern throughout 2015 and even in the years preceding it. We can now expect similar bouts of volatility as rumour and expectation bump against reality over the coming months and, if the betting companies are right, years as we wait for a firm confirmation of action on the UK’s decision to leave the EU.
With so much of the market governed by the political climate and the forks in the road which this entails, anyone buying or selling Sterling can have their circumstance change quite dramatically without much warning.
I strongly recommend that anyone with an upcoming foreign currency requirement should detail this to their account manager. We may be subjected to very sudden movements over the coming weeks and it is important to be in a position to move quite quickly should any favourable opportunities emerge.
In the short term these heavy hints of a delay in enacting Article 50 only served to halt the slide on the Pound established late on Friday. Further pressure is expected this morning with the release of inflation data for the UK.
With such results being a prominent measure of the health of spending activity in the UK, we can expect strong movements if this data comes in lower than expected. The current consensus points to a slight drop from June, but given the sheer economic shock of a Brexit, I would not be surprised if this first look didn’t reflect a more severe deterioration, despite the beneficial effects of the tourist season. Anyone looking to purchase a foreign currency using Sterling may be wise to move immediately this morning preceding this data release at 9:30 am to avoid any risk on the result.
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