There has been speculation of a pending ‘vote of no confidence in the PM’ on the UK’s position on leaving the EU’s customs union. Theresa May rejected these calls which gave the Pound the boost.
Personally, however, I think this to be rather short lived and expect the politically uncertainty to return and with that pressure on the Pound’s value. Brexit uncertainty continues to drag on with little progress on what UK PLC will look like in just 24 months’ time. The Irish border which first started to be a talking point over 6 months ago still remains a focus point.
All this lack of progress is putting more and more businesses under pressure, many holding back investment as a result, which is resulting in a sluggish economy. Rolls-Royce has now confirmed that it will move some of its base to the EU to avoid any issues arising in the event of a cliff-edge Brexit.
The below table shows the market movements for a number of currency pairings in the last month:
|Currency Pair||% Change||Difference on £200,000|
Sterling’s value has moved widely over the last 30 days and a majority of this has been changing speculation on interest rate change in the UK. Two weeks ago the view was that there was an 80% chance of a hike by the Bank of England (BoE) at next week’s meeting and a 50% chance of another hike in November. Since then however economic data for the UK has been missing expectations and commentary from bank officials have spooked the market. Lloyds only this week suggested that there was only a 20% change of a hike next week and some are even suggesting there is not even an argument for a hike in the entirety of 2018.
This changing sentiment towards an interst rate hike has been weakening the Pound's value and will remain one of the main drivers for GBP exchange rates.
The interest rate decision is now only a week away, if the BoE does raise interest rates by 0.1% exchange rates may well go up but probably only by a small degree. If they don’t hike and fuel speculation that they won’t for the remainder of the year expect Sterling rates to fall down by a much bigger degree.
Bearing in mind that Brexit uncertainty is still as high as it has been plus poor data releases, the argument to raise rates are weakening on nearly every economical release.
The UK economy grew at just 0.1% in the first quarter of the year, well below expectations and its slowest pace since 2012. Plus recently UK car production fell 13% year-on-year in March, amid concerns over falling diesel sales and the impact of Brexit on exports.
Next on the horizon before the interest rate decision on Thursday will be Tuesday with an update from the housing market in the UK. This is data for April and personally I don’t hold much optimism of a positive figure. Both data from February and March showed a real slowdown in the sector which if confirmed continued into April could result in a weaker Pound as the UK returns from the May Bank holiday.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.
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