Sterling dropped to multi-month lows during yesterday’s trading session, as both the political uncertainty surrounding the Brexit plan and weak data caused a sell-off in it’s value. The table below shows the range of a number of exchange rates during the past month, displaying the difference you could have achieved when selling £200,000.00 durin the high and low points of trading.
|Currency Pair||% Change||Difference on £200,000|
Hopes of an interest rate hike from the Bank of England dropped yesterday, as UK inflation levels appear to have levelled out. Earlier in the week it emerged that wage growth in the UK is weak despite low unemployment, so slow wage growth coupled with lower than expected inflation levels have collectively caused a sell-off in the Pound.
The anticipated interest rate hike on August the 2nd had been propping up Sterling’s value to an extent during this time of intense political uncertainty, so now that hopes have slipped it’s understandable to see GBP exchange rates drop across the board.
Shortly after the Brexit vote just over two years ago now, talk of a softer Brexit had often resulted in a boost to the Pound’s value. This pattern appears to have changed slightly now that time is running out to agree on the Brexit terms, not only with the EU but within the current Government.
There are clearly splits in the camp, especially since May put forward the ‘White Paper’ last week. The White Paper contains the governments plans for Brexit and caused a rift within the government, with Brexit Secretary at the time (David Davis) stepping down along with the Foreign Secretary (Boris Johnson). Both of which are ‘Brexiteers’ and had hoped for a stronger break from the EU which is the underlying issue in the Houses of Parliament at the moment.
May almost lost a vote to amend the bill late on Tuesday as there were just 6-votes in it. The BBC has since reported that there could have been a vote of no-confidence if this took place, which in my opinion would cause the Pound to sell-off dramatically.
Markets no-longer appear to be tuned in to whether the Brexit will be Hard or Soft, and now just being able to carry it out with a set plan looks to be the major driver of Brexit influence on the Pound.
The past four years have been some of the busiest and most tumultuous in British politics, and there have been 4 major votes in just the last 4-years. After the Scottish Referendum in 2014, the general election in 2015, the Brexit referendum in 2016 and then the snap election in 2017, the last thing needed at the moment is another general election. There have been reports that Brexit rebels have been warned to support May or face another general election, and if this is called I expect to see another sell off in the Pound.
Boris Johnson was unusually serious in his resignation speech to a half empty house of commons yesterday, as he officially stepped down from his position as Foreign Secretary. The sell-off in the Pound accelerated as Johnson was scathing in his assessment of the Chequers White Paper plan. There were none of the usual jokes or flamboyant language he’s renowned for, and the speech is being liked to the famous one by Sir Geoffrey Howe in 1990 that paved the way for Margaret Thatcher’s downfall weeks later.
It’s also worth being aware that the new Brexit Secretary, Dominic Raab will hold his first talks with his EU counterparts in Brussels today.
Retail Sales data is due out at 9.30am this morning with 0.4% Month on Month and 3.9% Year on Year expected. An unexpected drop would likely see the Pound slide as it will lessen the chances of a rate hike in August in my opinion. Do get in touch if you wish to be updated.
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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