This Pound Sterling report will address the factors that are likely to affect GBP exchange rates this week. The below table shows the market movements for a number of currency pairings in the last 30 days:
|Currency Pair||% Change||Difference on £200,000|
With such little economic data out this week, I expect Sterling exchange rates to be heavily driven by official releases and rumours breaking out of the British political arena. Evidently, the markets are hinging a lot of Sterling’s value on PM May’s ability to protect her leadership. There was a great show of support from her cabinet over the weekend which provided a degree of support to the Pound during yesterday’s trading. Mrs May also took the opportunity to question Chancellor Phillip Hammond and Foreign secretary Boris Johnson's motives, both whom could have been seen to belittle the cabinet’s attempts to plan for constructive Brexit talks with the EU. It will be interesting to see how the markets react.
Should there be another attack on May’s credibility, I would expect Sterling weakness once again.
Uncertainty has been Sterling’s major anchor since the Brexit vote, with investors continuing to factor in the worst possible outcomes for the UK economy following its divorce from the EU.
These Brexit talks have been heavily watched since the first one started back in June. We have had 5 since and the main point of negotiation remain the same. The divorce bill is still yet to be set as does immigration control.
Yesterday evening, PM May exclaimed the ball is in the EU’s court having already submitted the price the UK is willing to pay to leave the EU and detailed a friction-less transitional trade agreement. However, there has been very little response from the single block. Are they refusing to play ball? Or is the UK’s settlement well under the amount that was expected? Either way the longer these talks go on, the longer that cloud of uncertainty will linger and continue to weigh on Sterling exchange rates.
Last night PM May insisted the UK has contingency plans in place should a “no deal” with the EU materialise. This has for a long-time now been earmarked as the worst case scenario for the UK, so any clarity as to what these contingency plans are may well drive long term Strength going forward.
In September, the Bank of England (BoE) suggested a hike in November could be on the cards, which ignited a considerable rally from the Pound. Following last week’s run of poor economic data however, I am beginning to wonder whether the markets are sensing a bit of a mirage from the BoE.
By talking up a rate rise the BoE helped a surge in Sterling’s value which helped reduce the cost of imports which in turn should help curve inflation back down towards the 2% target level. If I was holding Sterling I would be concerned whether another flurry of inconsistent data might further hinder the BoE's credibility, resulting in heavy Sterling losses.
This morning’s trade balance data may well reflect this theory so if you have a short-term currency requirement it may pay to get in touch with your account manager to see how the market has reacted. Furthermore, investors will be keeping a close eye on the Bank of England’s Credit Conditions survey which could well have an impact on November’s interest rate decision.
For more information on how future data releases could affect your currency transfer call our currency brokers on 01494 725 353.
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