Last week the Bank of England announced that, as part of their Quantitative Easing programme, they would offer to buy Government bonds or ‘Gilts’ in an attempt to boost the UK economy. Gilts are seen as a safe investment, so with the Bank of England buying them, they hope that it will encourage the sellers to spend the funds raised back into the economy. However as the BoE also cut Interest Rates last week, this caused investors to want to keep hold of their Gilts which are seen as being far more rewarding.
On Tuesday it was looking highly unlikely that the BoE would reach their target of buying £1.17bn worth of bonds, however by shortening the maturity date yesterday they had nearly 5 times more offers than they needed. This only reinforces the clear doubts in Investors’ minds for the longer term future for the UK, and was reflected in Sterling weakness throughout yesterday.
Since the UK voted to leave the EU in June, there have been many suggestions of joining alternative EU memberships such as the European Free Trade Association (EFTA). This would mean that the UK could maintain its free trade links with European countries, whilst keeping its commitment to leave the EU. However, Norwegian officials have warned that they could stop the UK from joining this group, for fears that the UK would dwarf the other countries in the group, with the UK being the fifth largest economy in the world.
It has also been noted that maintaining the UK’s relationship with the EU could increase GDP by 4%, and therefore if a Brexit does happen this would be a huge dent to the UK economy. With Brexit woes remaining on top of the headlines, I expect the Pound to continue to struggle until a level of certainty returns. Theresa May has confirmed that she does not wish to invoke Article 50 until at least 2017, and so keeping in touch with your broker to take advantage of any spikes from economic data releases which occur would, in my opinion, be a wise option.
There is very little UK economic data for the remainder of this week, with investor focus being on European data including German Consumer Price Index and Euro GDP Inflation readings on Friday. Both releases are expected to remain the same as the previous quarter and year, but if these figures impress we could see further Pound weakness by the end of the week.
With the markets moving on Brexit news daily, keeping in touch with your broker regularly may be useful to your currency exchange needs. You can call us on 01494 725 353.
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