After gently losing value since the Bank of England announcement last week, the Pound found some support yesterday as news reports suggest the UK will remain tied to the Customs Union until 2021 or until a solution on Ireland can be found.
The market reaction was fairly sombre because essentially the can is being kicked down the road with the market unable to fully assess this solution. What it does do is settle the question over the Irish border for now and should help the Pound to avoid any major pitfalls on this particular issue.
There is however still the final trade deal to discuss with the EU which could take many months to finalise, a final clear arrangement on the UK’s final future relationship with the EU may still not be apparent until 2019 or well beyond. The Pound may consequently remain range bound until these questions can be fully settled.
The below table shows the market movements for a number of currency pairings in the last week:
|Currency Pair||% Change||Difference on £200,000|
Important economic data next week concerns Government borrowing data, Inflation, Retail Sales and also GDP (Gross Domestic Product) data. All of this data will be seen in the light of whether or not it gives the Bank of England a reason to being considering raising interest rates down the line.
Personally, I cannot see any hike until the end of the year, if at all in 2018. However, only 3 weeks ago the market believed there was an 80% chance of a hike. A sudden flurry of positive data might force the Pound higher and could present opportunity. Negative news would reinforce the decision last week of the Bank of England and see the Pound struggle.
Today there is limited data but clients with a Sterling transaction may wish to be thinking very carefully about what lies ahead. Sterling is only 1.5 cents off the best rates to buy Euros in 1-year and still sitting close to post-Brexit vote highs on many currencies including the Australian Dollar, Kiwi Dollar and Swiss Franc.
Please get in touch to discuss any future requirements for the Pound today.
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