UK retail figures declined YoY and MoM for the month of June, is this the start of a Brexit hangover or a blip in the road? You can view live exchange rates at any time from our live exchange rates page.

GBP falls on weak Retail sales figures

Sterling suffered further losses against the Euro and USD during yesterday’s trading after Retail sales figures for June showed a decline compared to the same period last year and May of this year. Perhaps one of the main reasons for this slump in spending on the high-street, which was the lowest period of growth in 6 months, was due to the typically wet British Summer that we have experienced so far resulting in a drop in clothes sales.

However, in my opinion, I believe that the looming referendum throughout June acted as a drag on consumer confidence and spending. Any clients with an exposure to Sterling should in my opinion keep a close eye on all economic data from the UK throughout next month, as July’s figures will then be released and I feel that the Brexit results impact will start to be felt by the economy. I would anticipate further falls in economic data which may therefore continue to weaken the Pound.

There has been some stability brought back to the market however, with Theresa May on Wednesday that she would not be invoking article 50 until 2017. She had arrived in Berlin for talks with Angela Merkel, who has since given her backing to May in supporting her decision not to rush in to anything and ‘take time’ to assess what the UK want out of a Brexit and how to negotiate this.

Free trade means free movement of people

Merkel could well become a key ally for May, as Germany are the powerhouse of Europe and will have a lot of influence when it comes to negotiating trade deals etc. However, May also met with Francois Hollande yesterday evening, who may have thrown a spanner in the works for negotiating free trade with the EU, warning the UK, “It will be a choice facing the UK – remain in the single market and then assume the free movement that goes with it or to have another status.” One of the key arguments from the leave campaign was that the UK would be able to negotiate free trade whilst putting a limit on immigration, so I would expect this topic to create volatility for Sterling as talks unfold.

Looking further ahead to next week, we have the inflation report hearing from Mark Carney on Tuesday. Earlier this week we saw a boost in inflation figures for June, which can be mainly attributed to higher air fares due to the Euro 2016 tournament, as well as a rise in the price of fuel. It will be interesting to hear Carney’s thoughts on this rise in inflation and whether or not it will have an impact on the MPC’s next interest rate decision in August.

Although many analysts are predicting a rate cut in August, I tend to disagree. I do think there will be a rate cut, probably in the final quarter of this year, but I think it is too soon to act whilst the impact on the economy is still unknown. If you are buying a property in Europe and are worried about the effect that the Brexit and a rate cut could have on the value of the Pound, I believe that a forward contract is the most sensible and cost effective option at your disposal.

This will allow you to remove the uncertainty and volatility from the currency market by locking in your rate of exchange today for up to 18 months in advance. Although we have seen the Pound falling in recent weeks, we are only just below the average trading level over the past 10 years, and I believe that the Pound could fall further still in the coming months if there is a rate cut.

For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email rjh@currencies.co.uk.

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