This Pound Sterling report examines factors that could affect GBP exchange rates this week. The table here shows the change for a number of GBP currency pairings and the difference in value between the high and the low during the last 3 weeks:
|Currency Pair||% Change||Difference on £200,000|
It was an impressive end to the week for Sterling with the markets taking faith in Theresa May's breakthrough on Friday, it appears the first Brexit Shackle may have been broken. Evidently investors have marked this initial statement of intent a symbolic one. Much of Sterling's drop since the referendum vote can be attributed to the markets bracing themselves for the worst possible outcomes for the UK economy: A Brexit no deal. However, a clear push for compromise regarding keeping the Irish border as invisible as possible, from both sides of the Brexit negotiating table shows a soft Brexit outcome is far more likely; which will only make Sterling a more attractive proposition in the long run in my opinion.
That is not to suggest that the Pound will now be set on an upwards trajectory in the near future. Those looking to buy foreign currency with Sterling should take note of the slight back track from Brexit secretary David Davis. The breakthrough seen on Friday is “non-binding”. Should the next phase of Brexit talks start on the wrong foot, it doesn't take too much imagination to see the whole thing unravel.
A side from Brexit talks, there is a possibility Sterling holders will be treated to a strong stream of economic data which could tease the Bank of England into re-evaluating its monetary policy.
Inflation looks set to hit 3% (CPI release on Tuesday) for the 3rd consecutive month which will further justify the BoE's decision to raise interest rates last month.
The big one for me however is that unemployment levels are set to hit 42 year lows which will certainly help bolster average earnings this month. A key concern for the BoE to play cautiously last month was to protect the pinch felt by UK households. However if average earnings is on the rise and inflation has been curbed, then maybe the path has been paved for the BoE to make Sterling a more interesting prospect by raising interest rates sooner than they may have let on last month.
There is a chance this may have been factored into the market however, so if you are looking to buy foreign currency with Sterling, it may pay to act at the start of the week, just in case the releases fall short of expectation.
For news on how upcoming events and economic data could affect exchange rates call our trading floor on 01494 725 353.
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