The Pounds recent rally should not be taken for granted. With a number of key concerns around the Brexit vote still at play, is now a good time to buy foreign currency?
As the dust starts to settle following a busy few weeks for the UK economy, many clients holding Sterling positions have been questioning what strategy to undertake moving forward.
The markets have had to digest not only the triggering of Article 50 and the realisation that Brexit is actually happening but also UK Prime Minister Theresa May’s shock announcement, that the government were calling a snap general election in June.
Investors have had to react to both of these seismic economic decisions and as such the Pound has remained volatile against the majority of its major currency counterparts. If you are holding Sterling now could be the time to consider your requirements, in terms of what exchange rate you may targeting and what is your bottom line?
Even more importantly, I would be asking whether or not you are risk adverse enough to gamble on a downside loss, which in my opinion still outweighs the potential upside gains.
If the current market has taught us anything it’s that any outcome is possible, we only have to look at the results of last year’s Brexit referendum and President Trump’s victory, as proof that the seemingly impossible outcome can still occur.
For this reason, I have been urging my clients to take stock of the recent market developments and react to them accordingly. This means that any clients holding the Pound, should in my opinion, be looking for short-term market opportunities rather than gamble on longer-term sustainable gains. Of course, there is no way to quantify exactly how the market will move and what future economic & political decisions will be made, which is why taking control of the current market is a strategy many of my clients have undertaken. You then also have to question what affect any key decisions will have on the Pound’s value but this in itself backs up my opinion.
Why gamble on such an uncertain and unpredictable market? We are in a state of limbo here in the UK, as we wait for the government to start Brexit negotiations. What if we cannot secure a favourable deal with the EU? What if we cannot negotiate custom agreement to allow free movement of trade with our closest allies? Whilst these questions remain unanswered, I feel there is too much risk in the market to just assume that the recent upward curve will continue unscathed.
The Pound has made gains against most of its major counterparts over the past couple of weeks, as the markets start to digest the recent economic & political developments.
GBP/EUR jumped by over two cents, whilst GBP/USD hit a 6 month high only last week. A similar upward spike against the AUD is also evident and as discussed during the early part of my report, now could be the time to take advantage of the current upward trend.
The Pound has already found resistance under 1.20 against the EUR, before retracting over the weekend and with similar resistance under 1.30 against the greenback and 1.70 against the AUD, I do not feel investor confidence is yet high enough to drive the Pound through these key resistance levels.
Last week’s positive move went against the grain, as historically any political U-turns usually bring with it a level of uncertainty and the currency in question is put under pressure. As regular readers will know any economic & political uncertainty is a currencies biggest downfall and for this reason I would be extremely tempted to take advantage of Sterling’s recent revival.
Looking ahead and this week is extremely sparse in terms of UK economic data releases, so the markets focus will centre almost entirely around Friday’s Gross Domestic Product (GDP) figures. With the expected figure of 0.4% growth down on previous, expect this to be factored into Sterling’s value this week. Any figure released that is outside of this remit will likely cause additional volatility.
Any clients holding Sterling positions should be keeping in close contact with their personal currency broker here at Foreign Currency Direct, ahead of one of the month’s key data releases. Call us on 01494 725 353 or alternatively, email me here and Ill be happy to reply personally.
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