Has the UK government really made a breakthrough in talks, or is this another false dawn for Sterling? This report looks at the latest Brexit news and what's next for GBP exchange rates. The table here displays movements for a number of GBP currency pairings over the last month:
|Currency Pair||% Change||Difference on £200,000|
The Pound’s recent positive momentum seems to have come to a fairly abrupt halt this week, with Sterling coming under increasing pressure against a host of the other major currencies.
Once again it seems as though last week’s positive spike was yet another false dawn, with investors risk appetite for the Pound seemingly evaporating.
GBP/EUR rates climbed close to 1.14 but now the Pound’s support levels around 1.13 are being severely tested, whilst Cable is trading back below 1.40 having sat above 1.41 only a few days ago.
Whilst Sterling has held its position against the AUD around 1.78, this is likely due to other external factors, which we will look at in more detail later in this report.
As regular readers will know Brexit sentiment is the main driver behind Sterling’s value and will continue to be for many months ahead. The Pound's recent show of strength had come about due to some positive media reports, indicating a potential breakthrough in Brexit negotiations.
This good feeling surrounding Brexit was a continuation of recent trends, with the Bank of England (BoE) indicating that they may be looking to raise interest rates earlier than many had anticipated.
This helped to boost investor confidence and the Pound’s value rose as a result. There seemed to be renewed hope that the UK government were finally making some significant inroads, alongside Brussel’s seemingly softening their stance on the UK’s exit and its future economic relationship with the EU.
However, leaked reports and snippets of apparent cloak & dagger meetings was never enough to drive the markets to such an extent in years gone by. The current hiatus with Brexit seems to be affecting the way investors view and react in the market, which is now driven far more off rumour than facts.
This means that clients should potentially be looking at their currency positions in a different light and try to ensure they protect any gains when they do occur.
Yesterday’s market developments seem to indicate that investors had priced in the recent positive reports, perhaps even over compensating for them. There is plenty of key market movers to hold investors & client interests this week but there is certainly no guarantee that they will be of benefit to those clients holding Sterling and looking for another spike in the market.
Despite last week’s upturn if we scratch below the surface all is not well behind the scenes. Reports of a splintered Tory government are not new but seem to be gathering momentum on almost a daily basis now.
UK Prime Minister Theresa May was very bullish in her recent public address and her behind closed door meeting with senior Conservative MP’s last week was also meant to be a success.
However, this seems now not to be the case following a report in the Times yesterday, which indicated three separate cabinet ministers warned May that the current government could collapse this year. Tory rebels could look to back Labours plans for full membership of the customs union, once the UK finally separates itself from the single bloc.
This seemingly goes against the PM’s current stance. As such, investors may not react positively to the outcome of the upcoming cabinet meeting on Thursday, or her subsequent speech on Friday, even if she remains bullish about the UK’s current Brexit position.
All of this is of course speculation but it proves how mixed the reports are at present, when it comes to trying to dissect how Brexit negotiations are really progressing. There are the status quo comments coming from the government, which is trying to portray a strong untenable positon on Brexit. Then there is the other side of the coin, which shows a quite clear lack of clarity, direction and support for the current regime and its goals.
For more information on how future data releases could affect foreign exchange rates, call our trading floor on 01494 725 353 or email me directly at email@example.com.
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