Supreme Court impacts currency market

Yesterday we had the long-awaited decision announced by the Supreme Court on whether Theresa May would need government approval to trigger Article 50. As expected, the High Court’s decision was upheld by an 8-3 majority. This means that the Government will need to pass legislation through both houses of parliament to grant itself the right to formally start the procedure to break away from the EU. The immediate reaction on the currency market was to see Sterling gain in value, however this positive movement was quickly reversed.

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Sterling finished the day down yesterday compared to the Euro and the USD as this legal decision does not render the UK’s eventual exit from the EU any less likely.

Northern Ireland vote deemed not to have an impact

The political turmoil in Northern Ireland continue sand some have suggested that the elections for the assembly scheduled for the 2nd of March may impact the timelines of the Brexit. This however was confirmed by the Supreme Court hearing to not be the case there seems to be little that could ‘de-rail’ the exit, simply the possibility to slow down the timelines. If, for example the Irish courts decide to refer the case to the European Court of Justice this could certainly muddy the water.

Why is Sterling so weak?

Sterling’s value remains low however many now don’t expect it to reach the lowest levels seen following the Brexit vote in 2016.
The UK is still one of the fastest growing members of the G10 but Sterling’s value is still really within touching distance of multi-year lows against most currencies. This highlights that Sterling’s value is really driven by political and sentiment at the moment.

Sterling is generally expected to gain value through 2017 as the Brexit story grows ‘stale’. I personally agree with the view that GBP/EUR rates could be higher through the second half of 2017 compared with the first six months. The same however could not be said for the GBP/USD levels due to the widely expected increase in interest rates in the US widening the interest rate difference between the currencies.

UK Borrowing figures fall

Yesterday the office of national Statistics announced the amount of government borrowing for the month of December. This showed a fall in the month of £0.4bn compared with 2015, meaning that overall borrowing for 2016 was £10.6bn less than the year before. This would have normally resulted in a push up in Sterling’s value however was widely overshadowed by the Supreme Court hearing.

UK GDP figures to drive market movement

Economic data will continue to drive market movement, the next of note which will change Sterling’s value is GDP figures which are released on Thursday morning. This is expected to show a slight contraction in business activity for the UK which will be linked to the Brexit I am sure.

In the build up to the event I expect to see Sterling’s value fall as the market prices in this expectation so if you are a seller of the Pound you may well wish to move before this event to avoid potential further costs.

There remains opportunity for Sterling to make headway against the likes of the Euro and US Dollar, so speak with a member of our team if you have a foreign currency requirement. Call us on 01494 725 353 or email me here if youd like to discuss your needs in more detail.


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