Sterling exchange rates have climbed significantly over the last fortnight. GBPEUR rates now sit close to the highest level seen in 15 months. To put this into monetary terms, a £200,000 transfer now into euros compared to two weeks ago could give you an additional €6,000.
|Currency Pair||% Change in 1 month||Difference on £200,000|
The reason for this climb has been building speculation that a deal on Brexit is imminent. There is a special cabinet meeting at 14:00 today where the PM is expected to outline this draft agreement, which if approved without resignations in her Government, opens the possibility of a Brexit summit being scheduled for the next 2 weeks to formally sign the agreement. The view is that this would result in a formal agreement between Westminster and Brussels that the PM would then bring to the Houses of Parliament for it to be voted through before the Christmas recess. Generally this is expected to be positive for the pound, hence the gains seen.
What I would highlight is that there are still a number of potential ‘speed bumps’ before a deal is concluded; any of which could result in some significant downward pressure on the pound's value. Generally, my personal view is that in the coming days sterling rates will either climb by a little or drop by a large amount. Something to consider when reviewing any exposure you have when judging your risk appetite and potential short term gains or losses.
Outside of politics, economic data continues to have an impact on the pound's value. Yesterday we had one of the largest monthly releases for the pound with Labour figures.
This data showed that wages rose at the fastest pace in nearly a decade in the third quarter of this year. Unfortunately, overall unemployment went up within the same period by a further 21,000 to over 1.38 million.
One of the main drivers for this came from the high street, with the continual pressure from internet shopping resulting in an estimated 80,000 jobs being lost this year alone, suggested by a Government report released earlier this week.
The UK economy grew by 0.6% in the third quarter of 2018, the fastest quarterly rate since the end of 2016. However, the European Commission forecast that UK economic growth in 2019 and 2020 will be the slowest in the EU joint with Italy at 1.2%. The future for the UK economy and the pound as a result remains very mixed.
Next on the horizon is Production Price index released this morning and Retail figures tomorrow. Most expect an improvement in this morning’s data, but for the current pressure on the Retail sector to be shown once more on Thursday. As a result, most expect the pound to climb in value today and then fall tomorrow because of these economic releases. Saying that however, I personally believe that Brexit updates will be the largest driver in market value over the coming days.
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