GBP/EUR rates have fallen by over 1.3% within the last week and GBP/USD by 1.25% (for the latest rates click here), as the impending action of triggering Article 50 gets closer and closer. This has been repeatability promised by Theresa May to take place by the end of March and is expected to once more cause more volatility and potentially downward pressure for the Pound. The House of Commons meet next week and will be closely watched as they pass amendments to the Brexit bill between the houses.
Even though this is widely seen as a political exercise, what is worth watching is the agreements made with regards to the level of visibility and updates? One of the points of the bill is for the negotiators to feedback information on the progress of the negotiations every three months however the counter argument is that this could weaken the UK’s negotiating position.
From a market position this point is key and will have an impact on the value of Sterling. Regular traders will know that the currency market does not like uncertainty so if the decision is made that no visibility will be given on what the UK-EU relationship will look like, expect the Pound to fall in value further.
Economic data will continue to have an impact on currency markets however they are somewhat overlooked by these pending Brexit updates. Today however we have a number of key reports expected at 9:30 which will change Sterling prices. We have Consumer Inflation Expectations along with both Manufacturing and Production figures. Inflation is probably the most important of the three as it is a key measure used by the Bank of England to set interest rates in the future.
Remembering that interest rates where cut less than 9 months ago following the Brexit vote on the assumption of ‘project fear’. The UK economy has however been preforming much better than feared so there will be building pressure on the Bank to reverse this decision and hike levels once more.
What will be watched however is whether inflation is climbing in line with wage inflation or whether it has now overtaken it as expected? This climb in inflation is also expected to have resulted in a fall in manufacturing and industrial activity. As a result of inflation climbing, buying materials has been getting more expensive and therefore dragging down activity.
This morning we had a stark announcement that retail activity in February was the worst in eight years. It is becoming increasingly clear that inflation is impacting the important retail sector. Buying stock with GBP/USD at 1.55 last year and now closer to 1.20 some of those costs will be going to consumers and pushing down activity.
If you have an upcoming currency requirement, get in touch with our currency experts on 01494 725 353 before the UK government invoke Article 50, as this may lead to further losses for the Pound and make a currency transfer more expensive.
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