The future direction for the pound continues to look uncertain, as the Brexit negotiations intensify this week ahead of the EU summit on 18th/19th October. In a week that has been described as “hell week” for the Prime Minister, the pound is currently hovering around a 10 week high against the euro, presenting those clients looking to buy euros with a good opportunity.
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Wednesday is anticipated to be the most important day, when the EU are expected to offer Theresa May a free-trade deal with all the trimmings but will not provide for frictionless trade. It has been reported that the offer is set to contain 30-40% of what is included in the controversial Chequers plan. The Northern Ireland customs border is likely to remain the contentious sticking point although there is talk of a compromise that would extend customs arrangements beyond 2020 after the transitional period comes to an end. Theresa May has said that there must be a “precise” political declaration that guarantees frictionless trade post Brexit, something the EU are reluctant to offer. This will form part of the withdrawal agreement and without it nothing can be agreed.
The Prime Minister faces many challenges ahead. Not only must she first reach an agreement with the EU commission, she must then be able to pass this through Parliament when so many members have differing views on how the final deal should look. The heated issue of the Irish border also means that Theresa May must win over the Irish.
These coming weeks look set for perhaps one of the most volatile periods for sterling exchange rates. In political terms this country hasn’t seen something as big as this for decades as we approach these final stages in the negotiations.
Rumours of a possible snap general election in November to try and break the political deadlock and the possibility of a change of leadership in the Conservative Party are also keeping the markets guessing. For these reasons the pound is struggling to climb much higher. Any spikes in the price of sterling are generally proving short-lived at the moment due to these uncertainties so it is important to be ready to act quickly following any developments that provide a boost for the pound.
The Financial Policy Committee will be releasing a statement this morning which will highlight the stability of the UK financial system as well as assessing potential risks. MPC member Ben Broadbent will also be speaking this afternoon and any clues as to future monetary policy from the Bank of England are likely to see the pound react.
Tomorrow sees a number of UK economic releases including UK manufacturing and industrial production data as well as Gross Domestic Product numbers. A small decrease is expected in the official growth numbers although anything different could see market volatility. Brexit once again though will almost certainly overshadow these releases.
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