With the Pound currently very strong against many of the major currencies, this report discusses why this is the case and whether the trend of Pound strengthen will continue.

Is Sterling bucking a historic trend?

Those with an imminent need to sell Sterling in order to purchase other currencies have been presented with surprisingly attractive rates of exchange recently, as the currency has soared against all other major currencies. The general consensus was that Sterling was expected to decline in the lead up to the EU Referendum, and this expectation certainly wasn’t far-fetched when we consider how Sterling performed in both the lead up to the Scottish Referendum back in 2014, and in the general election in 2010.

Political uncertainty is one of the major drivers of currency weakness, and historically speaking we can expect to see the underlying currency of a country experiencing political uncertainty fall. Up until recent weeks the British Pound has been under pressure, with the GBP/EUR exchange rate hitting an annual low of 1.2320 just last month on the 8th of April.

The tides seem to have turned since then with GBP/EUR trading comfortably above 1.30 at present, and although yesterday we saw Sterling’s momentum slow, this hasn’t come as a surprise to me as traders were inevitably going to book profits on their Sterling positions which will halt its momentum. The loss of momentum could also be attributed to yesterday’s GDP figure release which came out at 2% annually, slightly below analysts’ expectations. Moving forward I’m expecting Sterling to hold on to some of, but not all of its recent gains, and I’m expecting the central level on GBP/EUR to trade above 1.28, and GBP/USD to trade above 1.44, on the day of the Referendum.

Latest Brexit news

Overnight news has broken that The Treasury is warning that millions of pensioners will be worse off if the UK leaves the Eurozone. The Times is also reporting that steps to create a European army are being kept secret from British voters until after the vote, and Alex Salmon late last night claimed that there will be another vote on Scottish Independence within 2 years of a Brexit vote. To learn more about how an EU Referendum could affect you click here.

Will Sterling’s upward trend continue from here?

The main driver of GBP exchange rates for most of this year has been next month’s EU Referendum. The reason behind the sudden surge in the Pounds value is predominantly being put down to major bookies and pollsters now suggesting that a UK exit, commonly referred to a ‘Brexit’, is now looking unlikely, and this news has been welcomed within the marketplace resulting in a strengthening Pound as the UK’s future is now looking a lot clearer.

Economic news releases have taken a back seat recently as the EU Referendum (which takes place on the 23rd of next month) has dominated news headlines. I don’t expect this to change but next Wednesdays Manufacturing PMI figure for May, and next Thursdays Construction PMI figure also for May are expected to be the most prominent UK specific news releases, so GBP sellers should keep a close eye on those data releases.

For more news on how upcoming data releases could affect your currency requirement or how the EU Referendum is affecting the Pound, call our trading floor on 01494 725 353 or email me at jxw@currencies.co.uk.

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