This report will examine the factors that could affect exchange rates this week in order to help you stay informed if you need to make a currency transfer. The table below shows the difference you would have received in a number of currencies when buying £200,000 at the high compared to the low for the past 3 weeks.

Currency Pair% ChangeDifference on £200,000
GBPEUR1%€2,200
GBPUSD0.52%$1,400
GBPZAR10%ZAR 380,000
UK-EU relations

Brexit certainty provides underlying support for Sterling

Sterling exchange rates have stagnated ever so slightly this week, following the considerable gains we saw at the start of the month. Pound holders could be forgiven for feeling frustrated as it did look as though Sterling may have started to gain traction as the UK finally broke through to the 2nd phase of Brexit talks with the EU on the 8th of December. Since then however, Prime Minister Theresa May’s inability to fend off calls for an official vote on the EU withdrawal bill last week allowed new question marks to surface. How can the UK’s negotiators go into trade talks with the EU next year with any real credibility, if once partially agreed, the progress has to be double checked by a heavily divided UK Parliament?

Despite this, the Pound appears to be stable at current levels, still sitting at 1.6% higher against the Euro and 1.2% higher against the Dollar since the end of November.

This suggests to me that the symbolic breakthrough in the first round of negotiations has provided an underlying value to Sterling, with the prospect of a Brexit no deal and parity against the Euro, seemingly now distant possibilities. Yesterday, the Bank of England released plans to protect European Banks operating in the UK post Brexit. Evidently, as time goes on, a soft Brexit looks the likelier outcome. It has always been the favoured option by the currency markets since the referendum vote and bodes well for Sterling’s value going into 2018. The more clarity we get between now and the 31st of December 2020 (deadline for Brexit transition deal set by the EU) the cheaper foreign currency will become.

Looking to buy foreign currency with Sterling?

I am quietly optimistic for 2018. A key denominator holding Sterling back is the Bank of England’s reluctance to keep its monetary policy in line to ensure Sterling’s competitiveness on the international stage. Inflationary pressures and waning average earnings in the UK dissuaded the BoE from hinting to further interest rate hikes throughout 2018.

However, Tuesday’s wage data from the Office for National Statistics might be enough to prompt some commitment from BoE. It stated that general labour costs rose by 3% in the third quarter of 2017, suggesting that the pinch felt by UK Households may not be as intense as first feared. As a result, the markets will be paying particular attention to the GDP figures released tomorrow afternoon. If they come out as strong as expected, The BoE may run out of reasons to justify their cautious stance at next month’s meeting. For those looking to purchase foreign currency with Sterling, it may pay to capitalise on current levels, just in case Friday’s release disappoints and sets a negative tone going into the New Year.

For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me 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.