This report will examine the factors that could affect exchange rates this week in order to help you stay informed if you need to make a currency transfer. The table below shows the difference you would have received when buying £200,000 in a number of currencies at the high compared to the low for the past 30 days.
|Currency Pair||% Change||Difference on £200,000|
In recent weeks the Pound has been performing fairly well against most of the G10 currencies as the UK moves one step closer to departing the EU. Towards the end of last year an agreement was made between the UK to secure reciprocal rights for UK and EU citizens living abroad, the amount the UK will pay to leave the EU and the Irish border.
This has paved the way for trade talks to begin and reports are suggesting that the trade talks will be done and dusted by October this year. For any client that is buying or selling the Pound in the next 18 months exchange rates could look a lot different and speaking to your account manager today to formulate a plan would be my recommendation.
Mud has been thrown by the UK and EU negotiators in the early parts of 2018.
Brexit Secretary David Davis showed frustration at the European Commission for warning UK businesses to start making contingency plans if they want to remain trading within the European Union at current levels, in other words insinuating a move of headquarters could work well for UK businesses. Furthermore the UK Chancellor Philip Hammond went above and beyond head EU negotiator Michel Barnier and gave a direct plea to leaders of EU member states. Shortly after (late last Friday) rumours emerged that the Spanish and Dutch Finance ministers had come to an agreement that they believe the UK should remain as close as possible to the EU after Brexit.
Over the upcoming years global trade negotiations will dictate the direction of sterling exchange rates, however legally the UK cannot negotiate across the globe until a new agreement has been made between the UK and EU. Therefore short term (next 8 months) the UK will negotiate with the EU and this amount of trade represents 50% of UK trade. Negotiations will be tough and EU members have already warned that the UK cannot be allowed a deal that means the UK are better off outside the EU than inside. Nevertheless I expect a deal will be reached in the final hour which allows the UK to have access to the single market which will help the Pound to continue its recovery against all the major currencies. For clients that are holding onto a foreign currency and wish to buy the Pound, now is the time to make a concrete plan as rates could look considerably different in 12 months.
In recent weeks there has been numerous reports suggesting that the Bank of England could raise interest rates towards the end of this year. Technically if this was the case you would expect the Pound to make further inroads against all of the major currencies. However I’m of the opinion that interest rates will be kept on hold at 0.5% for at least the next 12 months. My reasoning for this is I expect the Pound to have a good run this year, which in turn would lower inflation levels back towards 2%, something that many leading forecasters are predicting.
There is only one key economic data release to keep your eye on for the remainder of the week and that is Retail Sales numbers released 9.30am Friday.
Thank you for reading today’s market report, I would greatly appreciate any feedback you have and would take pleasure in replying personally. I am more than happy to assist you with any of your currency requirements, you can get in touch on 01494 725 353 or email me here.
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