The Pound had an excellent week last week, reached multi-month highs against the majority of major currencies. In this report we discuss several of the contributing factors to this a have a brief look at economic data for the week ahead. The table below shows the difference you would have received when buying £200,000 at the high compared to the low on Friday 26th January 2018:

Currency Pair% ChangeDifference on £200,000
GBPEUR0.59%€1340
GBPUSD0.85%$2300
GBPAUD0.67%AUD $2300

Why has the Pound strengthened?

Lord Jim O’Neil, economist and former chairman of Golden Sachs was a catalyst to Sterling strength when he gave a very positive outlook on the UK economy. He feels the UK will rebound strongly following Brexit.

We then had news that finance ministers from both Spain and the Netherlands wish to have a close relationship in regards to trade with Britain which caused a further boost for Sterling.

Pound’s recent surge against the Euro, US Dollar and Canadian Dollar

German Chancellor, Angela Merkel made similar comments, which caused Sterling to spike considerably, due to Germany being considered the engine room of the EU and heavy reliance on the UK purchasing it’s vehicles.

The willingness to get deals in place was also shown by US Treasury Secretary, Steven Mnuchin who stated the US was “very supportive of the UK over the Brexit issue” and wanted to see a successful transition.

Be wary of thinking Sterling gains will continue however. If we look at the last time the GBP/EUR exchange rate hit 1.15, it only created a very small window of opportunity following the Irish border deal. This was also the case last week, and is a good reason to have broker on board in order to take advantage of these situations when the opportunity arises.

Be wary of thinking that Sterling gains will continue in the long-term, this is likely to be a small window of opportunity for those selling Pounds.

Phase two of Brexit negotiations are set to begin shortly. UK Chief Negotiator, David Davis and EU Chief Negotiator, Michel Barnier are currently at logger heads. Davis would like the UK financial sector included in any deal and Barnier has responded saying that Brussels will not be able to cherry pick aspects of the deal. EU services have also been approaching UK business and advising them to relocate to the EU or risk losing contracts. The talks could prove to be problematic which does not bode well for Sterling.

If I had a Euro exchange to make in the short to medium term, I would take advantage of rates as they sit. Click here to check live exchange rates.

Data releases of consequence this week

Consumer Credit – Consumer Credit data is due out tomorrow. It measures the amount borrowed the previous month. It gives an idea as to whether consumers can afford large expenses which can cause economic growth. It is not always healthy to see a rise however, if borrowing is not affordable. This is of particular interest due to high inflation levels and poor wage growth in the UK.

Mortgage Approvals – Mortgage approvals is released shortly after consumer credit. It is a key barometer as to the health of the UK housing market. If there as an increase this could be beneficial to the Pound.

BoE Governor’s Speech - Mark Carney is due to speak later in the day on Tuesday. Investors will be listening with a keen ear to see if he mentions any potential changes in monetary policy. I expect a slightly dovish tone and would not expect too much movement on the market following the speech.

If you would like more information about events that could affect exchange rates please call our team of currency brokers on 01494 725 353 or email me directly here.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.