Even through there is a lot of UK political uncertainty hindering the Pound's strength, factors elsewhere have resulted in some significant movement on Sterling exchange rates recently. GBPEUR rates reached a 3-month high and less than a cent from a 12-month high at the end of last week. GBPUSD rates however reached a new 6-month low as of this week. Both GBPEUR rates and GBPUSD rates have moved by nearly 1.5% in the last 7 days. This being the equivalent to the top rate of annual interest offered in UK banks before any tax deduction. This shows how important timing a transfer can be. The table below shows the range of exchange rates for a number of currencies during the past month, and the reflection in the cost of buying a number of currencies with £200,000.00.
|Currency Pair||% Change||Difference on £200,000|
Generally, UK economic output has been slowing since the vote to leave the EU, a lot less severe than widely predicted on the eve of the referendum but the impact has been significant. UK GDP expanded at only 0.1% in the first quarter of 2018, the slowest pace in more than five years. The fall of sterling’s value resulted in more inflation and a squeeze on consumer spending and confidence.
Jobless figures however continue to improve with 1,000 people finding jobs a day since the vote to leave. Unemployment is at just 4.2%, the lowest level in over 40 years. The long-term future for the UK pound is likely going to be heavily influenced by the outcome of the Brexit negotiations, what ‘UK PLC’ will look like and the pace of global growth. The next stage of negotiations is the European council meeting at the end of next week starting on the 28th June. There remains uncertainty as to whether the UK will remain in the Customs Union and indeed who will be at the head of government when Brexit takes place. My personal view is that the UK will leave the Customs Union and the transition period will last to the end of 2020. When and if this is confirmed it would likely have a positive impact, but I do expect the political uncertainty to intensify beforehand and for it to weaken the Pound in the medium term first.
Yesterday there was another defeat in the House of Lords on how much of a say Parliament should have on Brexit. These go back through the houses this week and The EU withdrawal bill is now scheduled to be debated again tomorrow. If successfully passed I expect the Pound to climb in value however further delay will probably have a negative impact.
UK’s manufacturing output in April showed some worrying figures recently with its biggest monthly decline for five-and-a-half-years. The UK manufacturing sectors “risks becoming extinct” without a UK-EU customs union, according to the president of the CBI. We have the latest CBI Confidence survey released tomorrow and I expect to have a negative tone and weaken the Pound in tomorrow mornings trading session.
Thursday however remains the biggest day for UK data this week. Public Sector Net borrowing, the amount the government is borrowing, is released at 9:30 and expected to show a steep climb which will probably weakening the Pound further. In the afternoon, we have the latest update from the Bank of England which will also be keenly watched by the market. Any hint towards an early interest rate hike later in the year could be very Pound positive however; I too think this to be rather unlikely and for the Pound’s value to remain under pressure through the remainder of the week. Personally I think Pound buyers will be the winners of the week with anyone selling Pounds for another currency losing this week as the above events pull the Pounds value and 'international brand' lower still.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.
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