The pound continues to test the lower levels against the euro and US dollar despite better than expected UK Purchasing Managers Index (PMI) services data released yesterday. The numbers arrived at 51 indicating expansion in the sector which was welcome news for the UK economy considering the poor construction and manufacturing PMI data earlier this week.

Currency Pair% Change (Month)Difference on £200,000
GBPAUD4.05%AUD $15,320

The construction numbers on Tuesday fell to below 50 indicating contraction in that sector. This is relevant as it is normally the construction and property markets which are the first to fall ahead of an economic downturn and the numbers do point to a drop in confidence in May. The fall in the price of sterling though is largely being driven by continued Brexit uncertainty and the perceived risk of a no deal Brexit.

Retail sales data from the British Retail Consortium this week also painted a worrying picture for the health of the UK high street with sales falling by 2.7%, the biggest drop for 24 years.

With no UK economic data releases today focus shifts to Halifax House price data on Friday as well as the National Institute for Economic and Social Research (NIESR) Gross Domestic Product estimate. House Price numbers are topical at the moment considering Nationwide reported a drop of 0.2% last month.

Scottish Independence Referendum a Risk to GBP Value

Brexit outlook and Peterborough by-election

The Peterborough by-election will be held today and could see another shift away from the two main UK political parties as seen in the recent European elections. Expectation is for a win by Mike Greene of the Brexit Party which would give the newly formed party its first seat in Westminster with a voice in parliament which may have some bearing on the final course of Brexit.

There has been much talk this week about a US UK trade deal and this has coincided with private meetings between US President Donald Trump and the Environment Secretary Michael Gove as well as Brexit Party leader Nigel Farage. It would appear that discussions are quite advanced and there is likely to be considerably more from this story in the weeks and months ahead.

Meanwhile the Conservative leadership contest continues with Boris Johnson warning that the party will be extinct unless they deliver Brexit. The current 11 candidates are expected to be whittled down to 2 in the next two weeks. The winner will then be chosen by the wider Conservative membership. The pound is likely to see a volatile period depending on who the next Prime Minister will be and their view on whether to push for a no deal Brexit. Please contact the trading floor to discuss these issues and to plan around these important developments.


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