Sterling currency markets have endured a volatile start to 2019, but over the past month the latest Brexit developments have seen the interbank GBP rate rally, with gains of almost 4% against the EUR and 3% against the USD.
|Currency Pair||% Change in 1 month||Difference on £200,000|
Last week saw 3 consecutive days of parliamentary votes which provided at least some clarity surrounding what direction the Brexit process might take, in the lead up to the 29th March deadline, which still currently stands.
On Tuesday, MP’s once again rejected the Prime Minister’s proposed exit deal which was followed by a motion to prevent a no-deal exit scenario on Wednesday, which MP’s approved and on Thursday voted for a motion that would ensure the PM requests an extension of article 50 from the EU.
In light of the votes, mid-market levels for the GBP/EUR pairing appear to have found some sort of stability above the 1.16 and are currently experiencing near 20-month highs.
As it currently stands, the UK is still set to depart from the EU at the end of the month and despite a no-deal scenario being rejected last week in Parliament, the vote was not legally binding and therefore still remains an option.
The Prime Minister has since suggested that she wishes to hold another meaningful vote this week, but it is uncertain whether it will go ahead and over the weekend it was suggested by Finance Minister Philip Hammond that it would only go back to Parliament if there was enough support. Hammond also went on to suggest it is now “physically impossible” to leave on the 29th and an extension is inevitable, in order to ensure enough time is available to see the necessary legislation through the House of Commons.
Historically Sterling currency markets have typically responded negatively to suggestions of a no-deal exit outcome, there’s argument to suggest this improvement in sentiment might be sustained, but with an extension to the exit deadline growing all the more likely, further volatility should be expected.
With Brexit developments taking centre stage, it’s easy to forget that the outcome of economic data releases also influence sentiment in a currency. This week will see key data realised, which will be keenly watched by investors.
On Tuesday, average earnings and employment data will be realised, which will be followed by inflation data, in the form of the Consumer Price Index on Thursday (CPI). Current expectations see no changes from the previous releases, however any deviations could influence market movement.
The main focus this week will turn to the outcome of the latest interest rate decision from the Bank of England (BoE) on Thursday, followed by the subsequent statement after. The BoE has held interest rates at 0.75% since November 2017 and there have only been 2 hikes in the last decade and based on current indications, these is not expected to be any change to the current level.
This week contains all the ingredients that could influence market volatility, so clients planning an upcoming transfer involving the GBP, please contact your account manager here in order to keep up to date with the latest information.
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