Earlier this week Bank of England Governor Mark Carney stated that the global trade wars the US is been involved in will continue to be a constant strain on global economic growth. He later went on to say that “the more hostile and uncertain trading environment is coinciding with sharp slowdowns in global trade”.
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The speech follows the UK’s Markit Services PMI report stating that the UK had incurred its first quarterly contraction since 2012. The resulting currency market response was that of an immediate, weakening for sterling rates which saw GBP/EUR interbank rates fall to 1.1145 and GBP/USD rates to 1.2587.
Last month, when the race for the PM spot had been whittled down to just Jeremy Hunt and Boris Johnson, Hunt had initially stated that he was keen to allow an extension of Brexit if the UK were to secure a deal. However, Hunt has since changed his stance which falls more in line with his competitors’ views in order to carry favour with hard-line Brexit supporters. This political turn point was decided in a bid to catch up with the frontrunner and expected PM, Johnson.
Whilst this is set to boost support for Hunt’s campaign, Theresa May is set to warn both candidates not to pursue a no-deal Brexit as this “threatens the UK’s future” ahead of her final speech as PM in Scotland tonight at the Conservative leadership hustings.
In addition, such developments may be the encouragement Scotland has needed to part ways from the UK. A recent poll conducted by The Sunday Times found that should the UK leave the EU without a deal, 51% of the Scottish population would vote on having another referendum to decide the future of their commitment to the United Kingdom.
With Nicola Sturgeon’s previous failed attempt to provide independence for Scotland, a hard-line Brexit could be the straw that breaks the camel’s back. It could be expected that these figures may rise should the possibility of a no-deal Brexit continuously wane on the minds of the Bloc.
With little economic data releases forecast over the next couple of weeks, the dominant influence on the sterling markets is likely to, once again, be based around the Brexit deadlock. Amongst growing concerns that little progress is being made to circumvent a no deal Brexit, the current UK political situation is that of uncertainty and considerable deflation in investor confidence.
Moving forward, with little positive news for the UK, both political and economic, some may consider that it is unlikely that we will see any major surges in GBP strength in 2019 and potentially see exchange rates continue to dwindle down below the 1.10 interbank mark – the baseline for the pound this year.
With this in mind, clients may wish to get in touch with your account manager here at Foreign Currency Direct on 01494 725 353.
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