As Brexit talks continue to dominate the headlines, Mark Carney outlines his plans for the UK and asks the public to be prudent. As a result, Pound lost further ground hitting its 31 year low again.
It is now over a week since the outcome of the EU Referendum was announced, yet talk of the ‘Brexit’ continues to dominate financial headlines worldwide.
Since the initial shock to the markets and the Pounds immediate drop against all other major currencies, holiday goers amongst others with a foreign currency requirement have since been dealt another major blow as the Pounds fight-backs have been quickly nipped in the bud.
Just to put the Pounds drop into perspective, the last time the Pound was this low against the US Dollar, it was 1985 and David Bowie and Mick Jagger were topping the charts with Dancing in the Street.
Following the initial drop Sterling exchange rates had been staging a fightback, but last Thursday, Mark Carney, the governor of the Bank of England (BoE) put an end to that with talk of a further interest rate cut and further financial stimulus in order to soften the financial blow of the Brexit on the UK economy.
Mark Carney spoke yesterday lunchtime once again after the Bank of England’s financial stability report. Some of the major developments to take away from yesterday’s meeting include the relaxing of capital control rules on UK banks in an attempt to encourage lenders to keep providing credit to the UK economy. The BoE will be freeing up an additional £150bn to encourage lending, we’ve also been informed that the Monetary Policy Committee (MPC) is ready to draw on capital and liquidity buffers should it need to, in order to support the supply of credit and also to support the markets in general.
When Mark Carney spoke last week he did refer to the possibility of a further Interest Rate cut from the record lows of 0.5% to 0.25% as well as further Quantitative Easing. This sent the Pound down whilst the FTSE 100 spiked upwards, which isn’t a common trading pattern. Yesterday Mark Carney avoided commenting on monetary policy moving forward as the MPC is due to make a decision next week. However, he did highlight that Sterling volatility has hit a record high, how risk adverse the UK has become since the vote and he also pointed out that the UK economy was slowing in the lead up to the Referendum anyway.
It’s worth noting that markets were already in bearish mode yesterday as it was announced that Standard Life stopped allowing clients to withdraw their funds from a commercial property fund worth £2.9bn due to ‘exceptional market circumstances’. This was the first time trading of this type has been halted since the last financial crisis. Late last night it emerged that both M&G and Aviva have also suspended trading on their property funds, with M&G’s being the biggest in the country (£4.4bn).
The fallout from the Brexit vote is inevitably continuing to drive Sterling exchange rates although figures released this week could create further volatility for GBP exchange rates. At 9.30am on Thursday morning both Industrial and Manufacturing figures are set for release, and then later on that day at 3pm the NIESR GDP Estimate will be released and I expect the markets to follow this announcement closely as any signs of an economic slowdown already will be heavily scrutinised. Contact your assigned broker if you’re looking to avoid any further potential losses, as further negative news could be the catalyst that sends Sterling even lower.
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