The UK’s trade deficit narrowed in October however the Office for National Statistics remain unconvinced that the weakening Pound is helping to boost exports. Exports increased by £2bn for the month of October, helping to close the trade deficit in the UK to £2bn. However the worrying sign is that the UK’s import volumes were expanding at a much faster rate than exports.
This news came at the end of a volatile trading week for Sterling. Any clients with a Pound to Euro requirement should take note that political events, such as the Italian referendum on Monday have the capability of creating huge swings in the currency market, and if timed correctly a £200,000 transfer would have gained you an additional £7,120 if bought at the high compared to the low.
Over the weekend, International banks have called for Theresa May initiate the Brexit process by committing the banks to an open ended transition agreement. What this effectively means is that UK banks would still have access to the EU for several years after the Brevity. The report, drafted by the British Bankers Association does not specify how long the deal would last, however it would start automatically at the time the UK exits the EU.
The UK would then run abridging period until the two sides settled on a deal outlining their new trading relationship. Even if the outcome from the Brexit is deemed as too severe, there would then be an adaptation period to give banks time to adjust to the new agreement. More interestingly, the report has suggested that UK companies would remain subject to EU legislation during this transitional period.
On Thursday the Bank of England are to discuss monetary policy. There is an expectation that the BoE will extend its quantitative easing beyond the New Year but many analysts are predicting no further action from the BOE in regards to an interest rate change. As we saw last week, when Mario Draghi announced an extension to its quantitative easing, (where the government will essentially buy assets from calm commercial banks to increase the value of the bonds and stocks) the Euro weakened significantly. This could create a similar scenario for the Pound, so any client’s currently holding Sterling and are looking at buying foreign currency may want to protect themselves with a forward contract, eliminating the risks of any drops in value.
The Bank of England could look to extend their QE programme this week which could result in Pound weakness. Clients who are looking to trade may wish to get in touch with their assigned broker ahead of the event. Call our trading floor on 01494 725 353 or email email@example.com if you would like to talk through your requirements.
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