Sterling's focus remains on Brexit as Government MPs return from the Christmas recess on both sides of the channel. This means we've entered the last 7 days before the vote on the present Brexit deal that's been agreed. In the build up to this event there has been a lot of speculation that PM May will be unsuccessful in passing the bill and what the ramifications could be. This includes the potential for further a referendum and potentially elections, however with less than 90 days before the UK leaves these are perhaps a little unrealistic without article 50 being extended.

Currency Pair% Change in 1 monthDifference on £200,000
GBPEUR2.0%€4,500
GBPUSD2.9%$7,500
GBPCHF2.4%CHF 6,000

This includes the potential for further a referendum and potentially elections, however with less than 90 days before the UK leaves these perhaps are a little unrealistic without article 50 being extended. If any of these were to happen next Tuesday the 15th, when the vote is currently expected to take place, it is widely expected that sterling’s value could fall significantly. The counter argument is that as PM May has had weeks to prepare for the vote, remembering that she formed a Government with the DUP almost overnight, she has had time to get the reassurances in place to be successful with the vote. If this were to be the case many expect some considerable gains for the pound's value.

What can be promised however is that the events over the coming 7 trading days have the potential for a large amount of movement on the currency market. As a result any change in expectation could well have an impact on markets beforehand. The debate on EU withdrawal act starts again as of tomorrow.

Can Sterling and Mrs May find their feet?

Stockpiling by manufactures set to prop up activity data

With Brexit taking centre stage there is still however economic data driving sterling’s value. Recent Consumer Credit data suggested a slowdown to 7.1% for the year until November, which is the slowest pace in three years. UK Manufacturing data has been showing signs of improvement however this is potentially not all good news. A large number of manufacturers are now stock piling in preparation for a no-deal Brexit deal scenario impacting their supply chains. Meaning that these improvements may well result in sharp contractions in the months ahead if a no deal Brexit is the result. Some good news however has been the borrowing figures from the Government which was the lowest level for the year until November for 16 years.

GDP figures released due this week for the pound

Moving forward Brexit is likely to have a large impact on the future activity of the UK economy. In the nearer future watch out for housing data released this morning, this is expected to confirm the sluggish performance of the housing market recently resulting in some pound weakness in early trading. Wednesday sees the first forecast for GDP growth for the UK in Q4 of 2018, again a real risk I think to the pound's value this week.

Friday is however the busiest from a data perspective with the latest manufacturing, industrial and trade data due to be released. All are expected to show a contraction apart from the manufacturing sector as stock piling potentially continues.

Personally, I see the pound under mounting pressure as the vote on what the UK trading relationship with its largest trading partner is potentially decided in less than a week.

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