The GBP has had a tough run of late, failing to make inroads against the majority of major currencies in the past few weeks. GBP/EUR interbank rates tumbled to a six-month low last week of 1.1123, whilst GBP/USD interbank rates fell to a two-year low of 1.2476. Sterling has also seen its value sharply decline against the commodity-base currencies, with the pound losing approximately 14 cents against the CAD over past two months based on mid-market rates.
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Sterling’s recent demise could be linked to the on-going uncertainty associated with Brexit, whilst the current vacuum in number 10 may mean that investors have no clear picture in terms of the UK’s political direction. This combined has potentially caused investors to shy away from the pound over recent weeks, which may have caused the currency to fall as a result.
With the Tory leadership challenge entering its final stages, the bookies now have Boris Johnson as a 1/20 favourite for victory. Whilst polls are certainly not full proof, it does seem increasingly likely that Boris Johnson will be the next prime Minister. He has been very clear that come what may, the UK will be leaving the EU by the revised deadline of October 31st, even if this means doing so without a deal being in place.
This in essence could potentially be the reason sterling has fallen so sharply and is unlikely to mount any sustainable recovery against either the EUR or USD in the short-term. There may be a possible correlation between the threat of a no-deal Brexit and a decline in sterling’s value. Whilst the true impact of a no-deal Brexit is yet to be fully understood, Chancellor Philip Hammond and Bank of England (BoE) governor Mark Carney have both damning verdicts of its economic impact and the subsequent fall-out for the pound.
These fears were reaffirmed by Virgin boss Richard Branson, who claimed the pound would plummet in the case of a no-deal Brexit. He went on to claim it would be “devastating” for Virgin and said GBP would fall to parity against the USD.
Whilst these words will cite concern, the potential fall-out is immeasurable at present and it is only when the new PM’s Brexit mandate becomes clearer, that any real gauge on the final outcome can be made.
Looking ahead, it’s a busy week for UK economic data, and thus there are plenty of potential triggers for the pound. Tomorrow we have the latest employment data, along with the UK’s official Unemployment Rate for May. With no change anticipated by the markets from last month’s 3.8%, any figure higher than this could cause the pound to lose value and vice-versa.
This is followed on Wednesday by a host of inflation data, which is again predicted to come out as per last month’s figure at 0.3%. Any deviation from this or a rise onwards the government’s target rate of 2% could help support the pound as we move through the week.
Finally, on Thursday we have the latest set of UK Retail Sales figures. These came out well below expectation last month, so investors will likely to be looking for a realignment, although recent economic data suggest that UK consumers have curbed their spending in the face of the UK impending and uncertain Brexit.
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