The week ahead contains some important developments in British politics associated with possible movements on sterling exchange rates. Today is the conclusion of the Conservative leadership contest with Boris Johnson predicted to be the winner at 1 to 33 on to win, and Jeremy Hunt 25 to 1, according to betting odds website oddschecker.com.
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We know Brexit news is most likely influencing the pound, and it will be no surprise to see the pound in focus this week as developments unfold. The results of the contest are due tomorrow, with the new PM taking up position on Wednesday, following Theresa May’s last PMQ’s (Prime Minister’s Questions) Wednesday lunchtime. The new PM will then give a speech around 5pm on Wednesday.
Sterling has been sensitive to Brexit news and the market perception of no-deal as increasing in likelihood, has seen movement on the pound , since the currency markets distrust the lack of clarity no-deal presents to business, trade and politics. With both candidates openly suggesting no-deal will remain an option the pound could be in for some volatility as any speeches are made and results announced.
Currency markets by nature like certainty and the appointment of a new Prime Minister opens many other potential scenarios. The House of Commons is fractured along many factions, including those supporting varying degrees of Brexit, and those opposed to Brexit. With the new Conservative PM having only a slim majority, he may like Theresa May, struggle to push forward legislation and Brexit plans.
It was reported in the Times over the weekend that up to 6 Conservative MP’s might defect, leaving the possibility of an immediate vote of no-confidence in the new UK Prime Minister as the current government has a very slim majority.
The Chancellor Philip Hammond has already made clear he will resign if Boris Johnson becomes the next PM.
With very little UK economic news this week, sterling exchange rates have lots of political headlines to contend with. Any clients with position to buy or sell the pound may wish to contact our team for more information on the market and your options.
In a sign of the mixed messages in the currency market on Brexit, here are some forecasts from Dutch bank Rabobank from FX street. They see GBP/EUR near 1.15 (with 1 euro being worth 87 p) for Jan 2019, assuming an extension in October and no General Election. The same 6-month forecast on GBP/USD sees 1.30. Rabobank also put a no-deal Brexit at parity on GBP/EUR and GBP/USD at 1.12. The Dutch bank also lists a forecast for a deal in the next year to see 1.2048 (1 euro buys 83 p) and GBP/USD to hit 1.39. Rabobanks central forecast is that Brexit will be delayed beyond October. This all shows the wide range of outcomes possible on Brexit and the possible effects for sterling rates against the euro.
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