This Sterling forecast looks at the current situation with Brexit as well as factors that could affect GBP exchange rates this week. The table here displays the change for a number of GBP currency pairings during the last month and the resulting difference in value on a £200,000 transfer:
|Currency Pair||% Change||Difference on £200,000|
The Pound’s recent run came to an abrupt end during yesterday morning’s trading, with Sterling losing value against a host of the major currencies.
GBP/EUR fell below 1.13, whilst GBP/USD dipped to 1.3366 at their low. GBP/NZD rates also retracted, with the Pound losing almost two cents before lunchtime.
Despite the Pound finding some support over the course of the afternoon, there were no improvements on the highs earlier this week.
This downturn in fortunes is more than likely linked to the latest report regarding Brexit negotiations. Despite the undertone being fairly positive in terms of the on-going hope that both sides could reach a deal before long, talks were broken off due to disagreements over a number of key issues.
The DUP party, who the government rely upon due to their coalition agreement, have stated that they will not sign off on any deal regarding Brexit unless Northern Ireland’s terms are mirrored exactly to those of the UK.
This is causing problems over an agreement regarding the Irish border, with the government angling for a softer Brexit for Northern Ireland, in order to keep a fairly relaxed border between them and Southern Ireland.
This halt in proceedings has caused some investors to panic and sell off their Sterling positions, which has caused the Pound’s value to drop as a result.
Poor UK Services data released yesterday morning (Service sector accounts for over 75% of the UK’s economic output) also had a negative impact on Sterling’s value early in the trading day. The poor figures were attributed to companies raising their prices at the fastest pace for nearly a decade, with the official figure down to 53.8 from 55.6 in October.
Add this the many unanswered questions surrounding Brexit, in terms of when we will move on to the next phase and what type of concession this may incur, and my opinion is to avoid gambling on the current market. We have no idea what sort of trade deal the UK can agree with the EU and how the UK economy may progress over the years, in what is completely new and unchartered territory.
The UK economy and ultimately the value of the Pound remains extremely fragile in the eyes of investors. This means than it is difficult to have confidence in a long-term sustainable improvement against the other major currencies.
My opinion is that we continue to work in a short-term opportunist market and as such clients holding the Pound should be considering their positions around the current levels.
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