UK economy buoyed by Trump victory

Sterling made a positive move against all of the major currencies during the latter part of last week, with significant gains against the Euro, US Dollar & Australian Dollar. This improvement came in line with the US election results and Donald Trump’s victory over his Democratic rival Hilary Clinton. Whilst many clients and investors are probably still digesting this most unexpected of results, the currency markets reacted in earnest and the Pound made its biggest single gains across the board in over 6 years.

GBP/EUR jumped by over 4 cents, with a similar move against the US Dollar and a 7-cent rise against the Australian Dollar. This has provided those clients holding Sterling with a fantastic opportunity and one that they would hardly have believed was possible, only a week or two ago.

My opinion on last week’s Sterling improvement can be attributed to previous comments made by Trump regarding a proactive trade deal with the UK and an apparent conversation between Boris Johnson & vice-president elect Mike Pence to the same tune. Trump went against comments made by current President Barrack Obama, who stated the UK would be at ‘the back of the queue’ when it came to trade negotiations, following our exit from the EU.

Trump however, indicated that this would not be the case and this has been taken as a major positive by investors and the Pound is benefitting as a result.

Personally, I would still heed some caution as apparently, UK Prime Minister Theresa May was only the eighth key figure head to receive a phone call from the President elect and considering we are meant to be their key economic and political ally, does this bode well for future negotiations?

I may be reading too much into this but with the current concerns surrounding the UK economy next year, high inflation likely in 2017 and growth forecasts low for the foreseeable future, now could be the time to take advantage of the current spike and not gamble on our fragile economy.

Is it time to sell my Sterling position?

Pound to Euro rates have hit a high of 1.1671 this morning, some of the best rates we’ve seen in the past few months. Pound to US Dollar exchange rates have spiked above 1.26, with Pound to Australian Dollar rates gaining further ground, hitting a high of 1.6699.

These rates will seem extremely attractive to investors and clients, who have had to sit back and watch the Pound’s value disintegrate over recent months. Personally, I would be extremely tempted to take advantage of this move for any short-term currency requirements, or even look to protect any longer-term positions by way of our forward contracts, which will protect you from any future negative market downturn.

Key economic data for the week ahead

Looking at the week ahead and we have some key data releases for the UK. Tomorrow we have a host of inflation data released early and with concerns over rising inflation, could the Pounds positive run be stopped in its tracks?

Wednesday is also going to be key for investors, with UK employment data including the latest official unemployment figure. Any deviation from the current level of 4.9% and I expect increased market volatility for Sterling exchange rates.

Finally, on Thursday we have the latest Retail Sales figures, which came out below expectation last time and caused the Pound’s value to fall.

Some fortunate turn in events could help the UK as it approaches its withdrawal from the EU, clients looking to buy or sell Pound Sterling could benefit from a brief conversation with our brokers to best understand your requirements. Feel free to call our trading floor today or email mtv@currencies.co.uk.

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