After a turbulent week for the pound, investors will now be looking forward and trying to decipher its next move as we head towards the end of 2018.
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It was another monumental week in the UK’s ongoing Brexit saga, with the pound suffering some heavy losses against the majority of major currencies. UK Prime Minister Theresa May clung on to power following a vote of no confidence by her Tory peers but ultimately came out on top, as she received the majority vote required to keep her in Government.
However, despite this small victory concerns over her Brexit deal with Brussels remain and she is currently trying to re-negotiate terms over the backstop deal, which seems to be causing her fellow MP’s the most concern ahead of the key Commons vote on January 14th. This is when the final decision will be made by Parliament, as to whether the current Brexit deal will be passed or not.
The pound suffered heavy losses, as investors sold off their GBP positions in haste, dropping to a low of 1.1027 against the EUR and a 20-month low of 1.2489 against the USD. Sterling did receive a boost following Theresa May’s victory after her no confidence vote, rising by over a cent against both the EUR & USD, although investors are likely to remain extremely cautious before making any heavy returns into Sterling, which in turn is likely to curb any aggressive spikes over the coming days.
Whilst the PM could be forgiven for thinking that she may have at last bought herself some breathing space, despite admitting that she would not be running for PM again in the next general election, she has once again had to deal with further negative reports regarding her Brexit deal over the weekend.
Two of her closest aids were forced to deny reports that they are planning for a fresh Brexit poll, whilst her on-going spat with former PM Tony Blair also resurfaced. She accused the former Labour leader of “undermining” the EU divorce talks by calling for a second referendum, which she said was “an insult to the office he once held”.
Whilst the PM will now at least have the chance to lead the UK into its final separation from the EU, there is certainly no guarantee that a deal will be in place when she finally does so. I expect sterling value to reflect this and as such I would be looking to protect any short-term currency positions ahead of the Christmas break.
Looking ahead and UK economic data is sparse during the early part of this week, so expect Wednesday to figure prominently, when we see the latest inflation data released.
Thursday and Friday are then likely to provide further volatility for the pound. On Thursday we have the latest Retail Sales figures and Bank of England (BoE) interest rate decision and subsequent minutes, which give investors a key insight into the current thinking by the Central Bank amidst the current Brexit turmoil.
Finally, on Friday we have the latest UK Gross Domestic Product (GDP) figures and the BoE Quarterly Inflation report, so expect a busy end to what could be another volatile week for the pound.
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