Will we see further gains for Sterling before the end of the year?

The Pound has so far had a very positive November with Sterling having improved by over 7 cents against the Euro. The Pound has seen gains owing to a number of reasons, most of which have been political. At the beginning of the month a High Court overruled Theresa May and confirmed that the PM will need parliamentary approval in order to trigger Article 50, which saw the Pound gain by 2 cents vs the Euro. Since then we have also seen the Pound gain following the US election.

It is clear that President Elect Donald Trump has a fondness for the UK and this is another reason why the Pound has seen gains vs the single currency and we are now at the best rate to buy Euros for two months.

The government will be seeking to overrule the High Court Judgment by going to the Supreme Court but this is not due to take place until early December and we may not even get an answer until January, which will leave the UK in further political limbo.

However, what is clear so far is that 2016 has been the year of anti-establishment with a real voice for political change coming through. If we are to believe the polls Brexit was unlikely as was Trump’s win and with Marine le Pen coming to the fore in next year’s French election we could also see a political change in France next year.

In less than a fortnight the Italians will hold their own referendum on constitutional reform and with the Italians already having had 65 different governments since the World War I would not be surprised to see further political unrest in Italy.

During 2016 the currency markets have been moving more so by political events rather than economic data and with the uncertainty in Italy I think we could see Sterling make further gains vs the Euro before the end of the year.

However, the problem facing the UK is that of when/Article 50 will be triggered and until we know whether or not the UK will opt for a ‘hard’ or ‘soft’ Brexit this is also likely to rein in some of the potential gains that Sterling may encounter.

What will happen to exchange rates if Brexit doesn’t happen?

Nigel Farage who was a key protagonist with the Brexit has warned that the UK will face ‘another big seismic shock’ if Brexit is not carried out by 2020. Theresa May has said on a number of occasions including Wednesday in the House of Commons claiming that Article 50 will happen by the end of March. The UK government has already claimed that there is no position for Farage and Chancellor Hammond has also stated that he will not look at bringing in Farage to help with UK-US relations.

My personal belief is that if the UK stalls on Brexit this could end up helping the Pound. If we look at what happened in June the vote to leave the European Union caused Sterling to plummet against all major currencies and with the recent challenges this has helped the Pound to make gains.

UK GDP data is published at 9:30am this morning and this will be the first measure of the third quarter. The expectations is for 2.3% year on year and 0.5% for quarter on quarter so any positive announcements could see Sterling make further gains.

Pound Sterling has recovered significantly from the lows witnessed in October, but political uncertainty remains a key driver for Sterling exchange rates and clients should look to protect themselves in the event of sudden changes. If you would like to discuss a currency transfer, call our trading floor on 01494 725 353 or email me here.


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