The Pound is on the trade weighted index (the Pound against all other currencies) currently sitting at 78.2. The 52-week high is 79.8, whilst the low 74.5. This week is one of the busiest of the year so far, as we get key information on the UK economy and Brexit which will I believe shape the direction on the Pound for the coming weeks and months. The table below displays the change for a number of currency pairings in the last month:
|Currency Pair||% Change||Difference on £200,000|
Sterling exchange rates have been fairly rangebound lately owing to a lack of new information to alter the market’s viewpoint. If you have a transfer buying or selling the Pound up ahead it is vital to be aware of all the news and events driving your exchange rate, plus the options you can take to protect yourself and maximise any positions.
The main reason Sterling is well below the more historical averages on many currencies is the uncertainty over what Brexit will look like.
This Thursday and Friday sees the second phase of Brexit under discussion at the EU Summit, discussion of the transitional arrangements, setting out the terms for the period after Brexit day, 29th March 2019. This is when the UK will have officially left but to avoid a cliff-edge and abrupt end to relations with the EU, the transitional deal should run until 2020 giving greater continuation and certainty for business and citizens.
Whilst creating great uncertainty, from an economic data point of view the Brexit has not so far been so bad. Chancellor Hammond raised his growth forecast for 2018 last week and cut borrowing forecasts for every year until 2022-23. There are still some fundamental questions to be answered but economically the worst fears have not been realised.
The key questions the BoE (Bank of England) will be asking themselves include is rising Inflation a problem? This will be answered by Tuesday and Wednesday’s data when we get the latest Inflation and Wage Growth data. The BoE will want to know that living standards are not being squeezed too much. Thursday’s Retail Sales will then give us an overview surrounding consumer spending, this will also be key to understanding if living standards are being squeezed and whether there is enough strength in the economy to withstand an increase in interest rates.
The BoE meet on Thursday, where no change in interest rates is expected but we could see further hints towards the likelihood of a May hike, currently expected to have about 70% chance of taking place. Mark Carney and the market will by then have had the latest Inflation data (Tuesday 09:30am), Unemployment (Wednesday 09:30 am) and Retail Sales (Thursday 9:30 am) to help make any decisions. Overall a stronger Pound seems likely but there could easily be some shocks. It feels like much of the good news is priced in to the Pound so whilst there could definitely be further opportunities for a higher Pound, buying on the spikes seems sensible since any strength is fragile and it would not take much to see the Pound losing value.
A falling Pound has caused Inflation to rise and this, coupled with the reasonably positive economic outlook has led to the Bank of England looking to raise interest rates.
From overseas we have the United States interest rate decision on Wednesday evening at 7pm which could see the US raise interest rates. Any big moves on the US Dollar can also influence other currencies so this is something to be prepared for.
Political tensions with Russia are also a reason to be wary over Sterling, any deterioration in already poor relations may weigh on sentiment for the UK.
This is clearly a very busy week for the Pound, the two biggest days of volatility in the second half of 2017 were the periods around the November interest rate decision and the December EU summit. This week’s data is just as important so clients buying or selling the Pound should be highlighting their positions to the team to ensure they maximise any opportunities.
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