This GBP exchange rate overview examines some of the factors that are likely to affect Sterling value this week.

The Pound makes an unexpected recovery

The Pound made an unexpected recovery against most of the major currencies during yesterday’s trading session, which provided some welcomed respite for those with Sterling to sell. It is widely expected that in the run up to the EU referendum the Pound will continue the weaker trend seen so far this year and I believe that yesterday’s appreciation of the Pound should be taken advantage of sooner rather than later.

The two main reasons for the move, which encouraged Sterling to gain by over 1% against the Euro, was that Mortgage Approvals in the UK hit a two year high whilst consumer credit rose by its fastest pace in over ten years.

Mortgage Approvals in January rose up by 3246 from December, which was far higher than the expected rise of 2265 and Consumer Credit rose by 9.1 percent since December, the quickest rise since the beginning of 2006. The increase in Mortgage Approvals is thought to have derived from buy-to-let landlords looking to protect themselves from the 3% increase in stamp duty set to be implemented on the 1st April. With house prices in the UK continuing to rise, buying a house in the UK is now considered to be a ‘safe haven’ for investors, implying that this positive trend will continue for this sector.

How will the UK leaving the EU affect the Pound?

It is hard to determine the exact effects of a state such as the UK leaving the EU as it has never happened before and therefore the scale of the outcome is unknown. Uncertainty encourages volatility in the currency markets and so one thing is for certain, in the run up to the event on the 23rd June the markets will continue to be volatile. This is the one of the main reasons why the Pound has weakened against most of the major currencies so far this year, as markets are ‘pricing in’ the likelihood of a ‘Brexit’.

The biggest effect will be on the global financial markets, investments and the Pound. It was stated by the IMF (International Monetary Fund) that a ‘Brexit’ could actually jeopardise an economic recovery for the UK and a suggestion was made that it will result in a decade of uncertainty meaning that a short term recovery for the Pound is very unlikely. HSBC have now warned that a Brexit could wipe 20% off the value of the Pound versus the Dollar and UBS have indicated it will bring the GBP/EUR pairing back down to parity!

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