As the UK begins to settle with the idea of Brexit, economic releases will become even more important in determining the risk factors surrounding the decision to leave the EU. This week's inflation figures may be the most important yet.

With a new government in power, what will happen to the Pound?

Some have highlighted that the currency market has now entered a more ‘traditional’ period, that being without the speculation of the changing horizon both economically and politically with the UK. Saying that however, the market will not stop and will continue to swing impacting the cost of everything from a property purchase to paying an international workforce.

Yesterday is a prime example of that as we saw the UK Pound go up in the morning session on news that one of the biggest technical companies within the UK is being sold. ARM holdings, a microchip maker made famous by their largest customer Apple, are being sold for £24 billion to a foreign company based in Japan. This impacted the currency market as a result of a flow into the UK Pound along with this large sum, demand for the currency went up and so did its value.

This swing alone gave clients buying €200,000 access to rates which saved them in excess of £1,500.

UK Inflation and Unemployment to impact the Pound’s value

We have the potential for a similar movement through this week as we see a number of key economic data releases on the strength of the UK economy. Yes, these are for June and as a result will not show the full impact following the referendum result but many do see these as a risk rather than an opportunity if you are selling the Pound and buying a foreign Currency. Later today we have UK Inflation and on Wednesday, Unemployment rates.

Generally, we are expecting the Inflation report to show a slight improvement and therefore Sterling could well increase in value throughout the day. Indeed, with the market views for the rest of the week I would not be surprised if we see today’s levels against the USD and the EURO being the highest for the week.

UK Unemployment data which is released on Wednesday I see as a risk to anyone with EUROS to buy. Following the result from the referendum a majority of commercial companies put a hold on all new recruitment. Yes, this release only includes the last week of June but I still see a negative tone been taken and as a result for Sterling levels to fall.

Longer term into the next 6 weeks we also have to be very aware of the potential for an interest rate cut being announced by the Bank of England in August. Lots have been talked about this but with the pending Quarterly Inflation Report due early August this will certainty start to impact Sterling’s value in the weeks ahead. Lastly keep an eye on pressure building on Theresa May to call an election, with the Labour party being at ‘loggerheads’, there is an argument May well call an election which would throw the Pound into another period of uncertainty and therefore weakness.

With UK economic releases likely to shape Sterling strength, getting in touch with your broker regularly may be useful. Call us on 01494 725 353 or email hse@currencies.co.uk.

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