Sterling exchange rates have swung hugely over the last week with the ever-changing horizon on UK politics and the potential impacts on Brexit. This resulted in a GBPEUR rate change of over 1% most days this week and a difference of over 2 cents over the last week. This put into monetary terms means timing a £200,000, position into euro’s over the last week well adds an additional €4,000.

Currency Pair% Change in 1 monthDifference on £200,000

As it stands what the Brexit deal, and therefore what the UK will look like in less than 100 days when the UK is scheduled to leave, remains unknown. The PM has now resisted calls for her resignation and indeed a ‘call of no confidence’ this week, and is now currently working to get further concessions with Europe on the elusive backstop in Ireland for a deal to hopefully successfully go through Westminster. There are many paths that Brexit could now take including; no break-through meaning no deal, a no-deal Brexit, Labour calling for a resignation, a second referendum, a ‘back me or sack me’ snap election. What was confirmed last night however is the date of the next vote, the 14th January, the second week of January once they return from the Christmas recess.  Not many of these potential paths would result in any significant gains for the pound suggesting there remains more risk than opportunity moving forward for the pound.

In the immediate future, anyone with a sterling exposure should look out for any news from the PM’s most recent trip to Europe for signs of a change in tone, rather unlikely I personally think which would probably result in further GBP weakness.

What this has resulted in is a dramatic fall in the value of the pound. Airport currency exchanges have now been reported as being as low as $1.05 for £1.

European Council President suggests flexible Brexit extension

Economic data shows contraction

Outside of Brexit and politics, economic data continues to be a driving factor for the value of the pound.  This however has also been showing signs of stress because of the Brexit uncertainty. Recently the UK services sector PMI showed a fall in November to the lowest level since the immediate aftermath of the Brexit vote. 

The good news however is because of less labour from Europe filling positions in the UK; the domestic labour market is at a high. UK construction activity rose faster than expected in November with the construction industry recording the highest level of job creation since 2015.

Next week UK data expected to weaken the pound

Next to watch out for is UK data on Tuesday with Retail figures and the latest update from the Bank of England (BOE) on Thursday. Generally, retail has been sluggish so most expect a contraction to be shown pulling sterling’s value down and the BOE Governor has been very outspoken on the potential impacts of a Brexit on the economy so again is a risk to sterling’s value I think.

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