After a difficult year what should those clients holding Sterling expect over the coming months? This report discusses some of the key factors driving exchange rates. The table here displays the change for a number of GBP currency pairings over the last month:
|Currency Pair||% Change||Difference on £200,000|
Sterling found life tough going for much of last year, as stagnant Brexit negotiations and a divided government handicapped any major advances.
Investor confidence in the UK economy evaporated as quickly as its growth forecasts shrank, whilst many analysts were predicting a fall towards parity against the EUR and below 1.20 against the USD. However, as is often the case with the currency markets, conditions altered and market perception improved slightly as 2017 came towards a close.
The Pound has found some much needed support over recent weeks, as a breakthrough in Brexit talks helped to alleviate some of the pressure on the UK economy. Whilst there are still many unanswered questions in terms of how the UK economy will look following out separation from the EU, the outlook is slightly more positive as we head into the first quarter of this year.
This new found optimism has been supported by some strong Manufacturing & Services data (these account for a large portion of the UK’s economic output), and the hope now is that the Pound has at least found a stronger foothold against the other major currencies.
Despite this slight upturn, I still feel that sterling will struggle to make an aggressive impact against the EUR or USD this year, with investors remaining sceptical regarding how the next phase of Brexit talks will progress.
This is likely due to how tough the next round of Brexit talks are predicted to be and the potential obstacles that could scupper any deal being agreed. We are now entering a phase, where the key points of the UK’s separation from the EU will be discussed. These include the relationships that will remain with our closest neighbours, particularly in terms of what trade deal the UK will be granted upon its exit.
As a result we are likely to see tensions rise and I would be surprised if this didn’t have a negative impact on Sterling’s value over the coming months. The first round of negotiations were far more tedious than most experts had predicted and it does make you wonder how the UK government will navigate the second phase of talks.
A close and open trade deal is key for the UK’s economic well-being and ultimately Sterling’s value over the coming months. With years of potential prosperity hinging on the outcome of these talks, it is clear that Brexit and its final outcome is going to drive market sentiment and ultimately Sterling’s value through 2018 and even beyond.
Brexit has been and will be the driving force behind investor confidence in the UK and ultimately the Pound, so any improvements or downturn in talks is likely to have a significant impact on Sterling’s value over the coming weeks & months.
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