The Pound has been on the rise since Article 50 but can it maintain current levels? Markets will be turning to the string of economic data due this morning to determine how the economy is holding up.

Article 50 trigger leaves Sterling stronger

Sterling is enjoying some fresh buoyancy as investors embrace Theresa May’s vision and shrug off the immediate Brexit fears. With nothing happening for two years the Pound is basking in what could be a very interesting period for the UK. Despite the inherent uncertainty of the Brexit it is becoming more apparent that the worst fears have been over exaggerated and that life will carry on for the UK outside of the EU. It is very conceivable that the fear which has hampered the Pound since June of last year could now gently be lifted.

Of course to view the future with no risk may prove to be a costly mistake. The likelihood of either some weaker economic data or problems with the type of deal the UK gets raising question marks over the Pound is still high. The negotiations will not be easy and rising Inflation is hurting consumer spending. Retail Sales figures from the British Retail Consortium released this morning evidenced how rising prices are altering shopper’s habits with spending on non-food declining, leading to an overall -1% decline following last month’s -0.4% decline.

Bank of England's main concerns is that consumers will be able to keep up their spending

Could the Bank of England raise interest rates?

However dig a little deeper into these concerns and they may not be that bad at all. A breakdown in negotiations could actually lead to an increased chance the UK is forced into some kind of either extension of the 2 year Article 50 period or a ‘transitional deal’ to cover the possibility the UK goes down a ‘softer’ Brexit path which would help the Pound. Also rising Inflation (which in a way is sterling negative) could see the Pound stronger as it raises the possibility of the Bank of England raising interest rates. With one member of the Bank of England voting last month to raise rates, the market will have to start pricing in the possibility of this event as Inflation rises. Currently at 2.3% some are predicting it may rise to 3 or 4% this year.

This raises the importance of this morning’s Inflation data at 09.30 am for signs of the falling Pound pushing up costs. Tomorrow morning is key too with Mark Carney giving a speech at 09.00 am and then the latest Unemployment figures released at 09.30 am. If you have a transaction involving the Pound then you should be keeping in close contact with your account manager as it isn’t clear which direction the Pound will take next. What I do know is GBP/EUR and GBP/USD are both up over 4 cents from the lows of 2017, GBP/AUD is up 7 cents and GBP/NZD almost ten cents. Given the potential negative backdrop of Brexit such information is I believe well worth taking on board for clients buying a foreign currency with sterling.

Where next for the Pound?

Markets are still unconvinced where next for the Pound and economic data will now become much more important in determining what happens. There are many forecasters still predicting GBP/EUR could hit parity and GBP/USD might hit 1.15. Such predictions look wildly optimistic to me and with much of the bad news on Brexit already out in the open clients selling a foreign currency to buy the Pound should probably be looking to lock something in sooner than later.

We have two bank holidays this Good Friday and Easter Monday so if you have any transactions to carry out in the coming days and weeks please be mindful of these non-banking days and make sure your account manager is up to date with your position. A well placed Limit Order over the long weekend could be the perfect way to capitalise on any unexpected volatility. Call us on 01494 725 353 or email me here to learn more.

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