Sterling has made some gains against a basket of currencies since the UK's vote to leave the EU. But are Brexit fears beginning to weigh in on investor decisions?

Brexit fears begin to weigh in on Sterling’s value

At the peak of this month, GBPEUR exchange rates hit 1.20 against its lows of 1.14 witnessed on this day last month. Clients were able to enjoy a significant increase on their Euro buying requirements, cashing in on an extra €12,000 on a £200,000 sell off.

Since then, the UK has been subject to positive retail sales and unemployment rates which remain at record lows. Consumer confidence has rebounded from its Brexit woes, GDP figures remain on target and both the construction and manufacturing PMI’s beat expectations.

However, whilst Sterling remains above its post-Brexit levels, it is beginning to lose momentum. GBPEUR exchange rates have fallen from their highs seen at the beginning of September, but remain attractive compared to the lows witnessed this time in August. These trends can also be witnessed with GBPUSD.

Clients are still €5704 better off compared to the lows of August, and given that Sterling has lost momentum despite positive economic data, I would be considering making a transfer in the coming days to avoid the potential for further losses.

The only exceptions witnessed are the commodity currencies. GBPAUD, GBPNZD and GBPCAD continue their uptrend with the potential for a US interest rate raise playing on investor decisions.

A rate hike in September, whilst low, could equate to weaker commodity currencies. The RBA and RBNZ have cut rates in recent months, and whilst they remain higher than the FED’s rate, the gap between return of investment and risks associated with commodities are narrowing if the FED decide to hike rates. Therefore, expect further gains for Sterling against the likes of the Australian Dollar if this was to materialise.

Bank of England keep rates on hold

It was widely anticipated that the Bank of England would keep interest rates on hold, and the markets had little reaction to the news. However most MPC members expect further cuts in the near future.

In conjunction with this, Philip Hammond is set to make his Autumn statement on November 23rd, which details the governments tax and spending plans. Mark Carney has reiterated on many occasions the need for Government to take on more of a role in stabilising the economy following Brexit. It is arguable that Hammond will adopt a different approach to his predecessor George Osborne, further cuts to spending are not necessarily what the UK needs at a time when economic expansion is more crucial.

In any event, the UK remains in difficult territory and it’s likely that Sterling will lose further ground as we approach October. Unless you are buying commodity currencies, I would consider buying foreign currency imminently to avoid further downfalls. Call our trading floor on 01494 725 353 to discuss your requirements.


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