Sterling exchange rates have been falling of late reaching the lowest level seen in over two years against the euro and a near two and a half year low against the USD on Monday.

This fall of the pound’s value has been widely put down to the increased likelihood of the new UK government failing to get a Brexit deal agreed by the end of October this year. Deutsche Bank currently attributes a 45% chance of a no-deal, while BNP Paribas thinks it is 40%.

The new government in Westminster was also weakened recently when the Liberal Democrats won the Brecon and Radnorshire by-election, cutting Boris Johnson’s working majority to just one MP.

Odds of a 2019 election increase

Odds of a 2019 election increase

The government now seems a lot more prepared for a no-deal agreement with Europe after UK chancellor Sajid Javid released an additional £2.1 billion in extra funding for preparations for a no deal. The total amount of funding is now over £6.3 billion. 

The latest announcement from Westminster is that they are planning to create up to 10 free ports across the UK allowing firms to import, and then re-export goods outside of the normal tax and customer rules.

Last week the Bank of England governor Mark Carney said that a no-deal could result in a further fall in sterling's value and a ‘shock’ to the economy. So, the potential ramifications are significant if the Government fails to get a deal.  There has also been the risk of an election being called this year, Coral are now offering odds of 13/8. Edward Moya at Market Analyst OANDA said that "If the Government calls for an election after October 31st, we could see a no-deal split that might ultimately see a second referendum."

 

Economic data for the UK suggests worries ahead

Economic data continues from the UK. UK Manufacturing contracted in July for the third month in a row and is now at the lowest seen since 2012.

UK consumer confidence improved for July, supported by strong wage growth and lower employment. UK construction has been showing concerns after data showed a fall in activity for the fifth time in six months, and optimism in the sector dropped to its lowest level since 2012. Last week the Bank of England (BOE) also gave an update on the economic health of the UK. They kept interest rates on hold but cut GDP growth forecasts for 2019 and 2020 due to the uncertainty being created around the UK’s future with Europe due to Brexit.

 

Friday GBP figures key for UK Pounds value

On Friday we have the latest updates on the economic health of the UK economy with Manufacturing data, Industrial productivity and Gross Domestic Figures released. FX street suggests that a contraction may be announced in overall activity in the UK, so this could be a topic to watch if you have exposure to the pound.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.