The EU Summit has now begun in Brussels and is one of the most eagerly awaited events for Brexit so far. Having been long billed as such an important date, expectations are high but the general mood has been of disappointment, with it appearing most likely no deal will be reached.
That does not mean a deal will never be reached, just that for now it appears less likely. Sterling rebounded last night as May spoke giving a clear indication she believes a deal is ‘achievable’.
The pound could easily lose value as the market loses hope over the recent confidence. Sterling has proved resilient in the last few weeks and has even had some good economic news to boost its performance; wage growth this week was the best in a decade. The goodwill being extended to sterling may easily dissipate however if we get to the end of the week with no progress having been made.
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In such scenarios, it is often helpful to look at past events, and looking at both the December 2017 and March 2018 EU Summits, much of the movement was in the weeks preceding the event. With sterling having been rather volatile last week, it might be that we have seen the big move. However, clients with a large currency position should not be complacent, at any point there may be news good or bad, which would likely have an immediate market reaction.
If there is a surprise and news of an agreement is released, any good news could be short-lived. The best strategy for clients buying a foreign currency with sterling seems to be buying on the spikes in your favour.
There are after all still many more hurdles to overcome to finalise a true deal on the UK’s final relationship with the EU, including a Parliamentary vote in the UK and a final approval by the remaining members of the EU too. It might be well into November, December or even 2019 before this is truly finalised.
Today we will see important data with Retail Sales released at 09.30 am. Retail sales are a major driver on the pound, because it represents a major area of UK GDP (Gross Domestic Product). About 26% of GDP in 2016 came from retail activity. UK consumers are well-known for their passion for spending money in the shops.
The main news to impact sterling exchange rates today and for the foreseeable is Brexit, expectations are for continued volatility ahead. If you have a position buying or selling it's very important to be up to date with the market to help maximise your position.
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