Sterling exchange rates have been improving over the last few days as expectations for a successful European meeting increased. This was confirmed yesterday after only 38 minutes of discussion as all 27-member states endorsed the agreements, after 18 months of heightened negotiations and arguments. They agreed on the two documents in question; the political declaration and the legally binding withdrawal agreement. These documents confirm the £37 billion cost to leave and the elusive ‘backstop’ agreement with the Irish border, plus the agreement on what relationships may look like going forward between the UK and Europe after 2020.
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The next step is the Westminster vote on the agreement to get the bill through Government. This is expected to take place in the next 2 weeks, before the Christmas recess. The PM, Theresa May, released an open letter to try and get the people of the UK behind the deal stating that the options are to take this deal, or no deal.
This Brexit vote will be the defining moment for Brexit and is likely to have a significant impact on the economy, and therefore the value of the pound. Personally, I expect a significant amount of volatility over the coming weeks as the market tries to second guess the result.
Currently, Best Companies put the odds of PM May getting the vote through at 50/50 so I would suggest all clients to review their exposure levels, calculate their potential risk to reward ratio and make plans around the event.
There are however plenty of other results which could unfold but there seems to be more risk than opportunity for any clients with pounds to sell in the near future.
Following this week’s progress on the Brexit deal in Europe it re-ignites the argument of a vote of no confidence for the PM. Currently there are around 35 letters in place, with 45 needed before a vote is made on PM May’s leadership. The opponents to her leadership only get one opportunity as if any challenge is unsuccessful another cannot be called for 12 months. As a result, they will probably be looking for their strongest time to submit the other letters and call this vote. This is a topic to be very aware of, as any challenge would be significantly negative on the pound I expect.
Over the coming weeks until a vote has been conducted, I see the pound being directly linked to the possibility of this result and the overall acceptance of the Brexit deal. I expect the markets to either move sharply down on any risk of a no deal, or only climbing slightly if PM May's Brexit deal preogresses.
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