This Pound Sterling update discusses factors that could affect exchange rates in order to keep you up-to-date should you need to make a currency transfer. The table below shows movement for a number of currency pairs and the difference you would have received when buying £200,000 at the high compared to the low during the last 6 weeks. For current exchange rates click here.
|Currency Pair||% Change||Difference on £200,000|
It is well known that the markets often move on rumours rather than facts however there were very few that could have predicted PM May’s gamble backfiring as much as it did. When the snap election was called, investors flocked to the Pound as the Conservatives apparent 20 seat lead would surely carry them through safely and provide long term stability to the Pound as the UK walks into Brexit negotiations. Naturally, waking up to the news with serious question marks surrounding the PM’s judgement, the Pound no longer seems such a safe bet. The shock result caused the Pound to fall against all of its major currency counterparts, dropping by 2% and 2.5% against the Euro and the Dollar respectively overnight.
Friday’s losses were further compounded as a string of negative economic data for the UK continued to roll out throughout the day. Inflation, manufacturing and industrial data came out far worse than expected with the only saving grace the UK’s trade balance continuing it’s fightback by reducing its deficit to -£10.4B from -£12B.
International insurance brokerage firm Willis Tower Watson also raised alarm bells with their recent report citing a chronic labour shortage could be about to hit the UK’s food and drinks industry as a result of the pending Brexit negotiations. With the rights of EU nationals working in the UK under threat, Willis see a drop of up to 25% in the workforce with 32% of the £28.2B industry’s labour made up of non-UK nationals. With 72% of the UK’s food and drinks exports currently going to the EU, demand on the labour market may not be the only shortage in months to come if trade negotiations with Europe start on the wrong foot.
The majority of major banks agree that a hung parliament was by far the worst possible outcome for Sterling’s value. With so much riding on the fast approaching Brexit talks, political and economic stability was a must in order to maximise the UK’s position when negotiating with the 27 EU members.
After reshuffling her cabinet, PM May is still faced with the difficult task of convincing the leaders of the Democratic Unionist Party to surrender their influence on overall policy making and as such risking their credibility in the eyes of their own voters.
Sterling holders will be hoping the deal will provide short term stability however given the DUP are actively still involved in a number of controversial policy changes, their long-term support may well be difficult to control. Personally, I struggle to see how investors will buy into May’s attempts to steady the ship ahead of the Brexit talks as there are too many short-term variables that could have such drastic long-term repercussions. As such I wouldn’t be surprised to see Sterling’s losses continue.
Jeremy Corbyn’s push to derail PM May’s queen speech deal will no doubt be the major driver for Sterling exchange rates in the early part of this week. In fact I wouldn’t be surprised to see market movement as May meets with Tory Backbenchers to discuss her campaign failings. However, investors will also be keenly looking out for how the UK will be approaching Brexit negotiations due to take place on the 19th of June. The Consumer Price Index release on Tuesday and Wage Growth releases on Wednesday should both be market movers, setting the scene for the Bank of England’s interest rate decision on Thursday.
To discuss how events could affect your currency requirement you can contact any of our currency brokers on 01494 725 353.
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