Sterling exchange rates have remained strong of late and a majority of these gains can be put down to sterling strength in light of developments on Brexit. Over the last few weeks politically commentary has resulted in the market potentially pricing in the expectation of an extension as Westminster continue to suggest that they will not take the current deal on the table, or leave with a no deal.
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Europe have suggested that they are open to an extension up until the European elections in a few months’ time, suggesting that a deal could be made, however the question really is within what timeframe would a deal be reached?
This delay has been seen as positive news for the pound as it gives investors some certainty, or at least a lot more than was the case some 10 days ago. By that I mean investors are taking the news that they now know what the trading relationships between the UK and Europe could be for the next 12 months plus, whereas before there was a risk of a no deal which had limited the amount of investment in UK PLC.
Brexit is still very much centre stage as we enter the 11th hour of negations. Currently the vote has been set to no later than the 12th March when Westminster will vote on the current deal from Europe. With 7 days until this vote, and following a bumper month of tax returns last month, the Government has now announced a spending of over £1.6 billion to 'forgotten' towns across the UK when the deal has been taken. This has been seen as a direct attach on Labour strongholds in the North of the country as the PM tries to woo Labour 'Leave Mp’s'.
All this is pointing towards an 11th hour agreement for either the current deal or indeed an extension, both of which I think would result in some sterling gains. Saying that however, this has widely been priced into the value of sterling over the last 2 weeks with GBPEUR climbing 3.5% and GBPUSD by 4.5% over the last 2 weeks. This points towards potentially a very large slip in the pound's value being on the cards if these assumptions are not confirmed. In summary, my view, is that sterling's value in the coming weeks could well climb a little further or indeed fall by a much bigger degree. Something to consider when reviewing your own exposure in the market alongside your risk appetite.
Economic data for the UK has been showing concerns as worries about Brexit impact economic activity or lack of. For example, confidence amongst UK manufacturers fell to its lowest level in 7 years very recently.
Later today we have the latest Service PMI data. This is expected to show a slightly positive reading so little movement is expected. This afternoon however the Bank of England Governor is due to speak at 16.35 and could well impact market value. Governor Carney is normally rather negative on the economic future due to Brexit so I really see this as a potentially negative event for the pound's value today.
Thursday, we have UK Housing data, again an area of contraction and on Friday GDP figures and industrial Production figures. GDP figures are of large importance and could equally therefore have an impact on sterling's value as we end the week.
Longer term, outside of Brexit, don’t forget that the UK Spring Statement is also 8 days away. This is something that has been hidden by Brexit headlines but equally could be a big mover in the value of the pound moving forward.
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