Are Brexit fears beginning to fade?

Despite posting its first weekly drop against the US Dollar in the last 3 weeks, Sterling appears to be holding on its recent gains after the Brexit plan was made clear almost 2 weeks ago by UK Prime Minister, Theresa May. It’s a similar picture for the Pound against many of the other major currency pairs also. GBP/USD is still almost 3% up from the morning May laid out the governments vision for the UK’s soon to begin departure from the EU, whereas interestingly GBP/EUR just hit a 10-day low as we enter the final month before the Brexit begins.

Last Thursday was billed as ‘Super Thursday; after the sheer volume of UK data due out. After the voting members of the BoE’s Monetary Policy Committee decided to keep rates on hold, Mark Carney gave a speech which was less hawkish than currency markets had hoped for resulting in Sterling weakness. Despite this short term move the outlook longer term for the UK is looking rosier, as the BoE raised its growth figure for the year to 2%. The bank last raised its annual UK growth forecast in November by a steep 0.6% (one of its largest increases ever published) which suggest to me that Brexit fears longer term on are the wane.

After Carney’s speech Sterling softened and British government 10-year bond yields fell by their biggest margin in 2 months, as investors hopes of an interest rate this year diminished. I think the chances of a first rate hike in 10 years will remain slim unless the Pound drops to the levels of last October and November, where a house purchase in Europe of €150,000 was £6044.36 more expensive.

How will Sterling perform in the upcoming months?

With the exception of the Euro over the past week or so the Pound has fared well in the wake of the Brexit plan becoming public. I wouldn’t be surprised to see Sterling soften as the process begins due it all being a step into the unknown, and I think the GBP/EUR pair will be one of the pairs to watch as March the 9th approaches as they’re both the most directly affected.

The UK economy has relied on its services sector for growth and the BoE’s current Quantitative Easing programme implemented in the wake of the Brexit vote has so far eased the initial shock to the economy.

Last week manufacturing, industrial and most importantly, services figures all dropped for the first time in months. Should this continue we could see alterations to the BoE’s longer term growth forecasts which could create drops in Sterling’s value as markets keep a closer eye on the UK as it enters a period of uncertainty.

Please note that if you would like to make a currency transaction but do not have all necessary funds available at the moment, we offer flexible forward contracts which allow you to secure the current rate on the entire amount by using just a 10-15% deposit. We can arrange these contracts for up to 1 year.

The week ahead for Pound Sterling

With no economic data releases from the UK today I’d like to bring our clients attention to this Friday which is likely to be the busiest day for Sterling exchange rates. Industrial and Manufacturing Production figures will both be released at 9.30am along with trade balance figures. Then at 3.30pm a leading think-tank (NIESR) will offer their GDP estimate for January.

As we approach the final hurdle before Brexit begins the Pound may lose traction against the major currencies. There are a number of options available to you if youd like to protect your currency requirement from further fluctuations. Speak with a member of our team on 01494 725 353 or email me here and Ill be happy to assist you.

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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.