This Pound update discusses factors that could affect GBP exchange rates this week, looking at whether the Pound can continue to strengthen this week. This table shows the market movements for a number of currency pairings in the last week:
|Currency Pair||% Change||Difference on £200,000|
This Friday will see a very important speech on Brexit by Theresa May in Florence, Italy.
Brexit talks and the general direction of the UK’s future relations with the EU are mired in uncertainty. Theresa May is under great pressure to provide some leadership and I am reminded of her two last speeches in October last year and January of this year which both saw big movements for the Pound.
It is unclear which direction events will flow but key will be any talk of the Brexit ‘bill’ to leave the EU.
Acceptance and acknowledgement of the bill should see sterling higher as it makes single market access more likely, a rejection of the bill leads to more chance of the UK crashing out with no deal and would be sterling negative.
Further muddying the political situation has been Boris Johnson wading back into debate rekindling the now infamous £350m pledge, the amount apparently the UK will save a week by leaving the EU. Boris was immediately shot down by many commentators including the chairman of the UK statistics authority Sir David Norgrove who called for him to withdraw the claim. Such debacle only goes further to underline some of the troubles the UK must surely face up to longer term in how Brexit is managed and operates. None of which will be good for the Pound and only serves to increase my belief the recent rise for sterling last week will be short-lived.
Key economic data this week is UK Retail Sales Wednesday and Public Sector Net Borrowing on Thursday where we will get further clues as to how the UK economy is performing. This will all be seen in the light of the moves last week on sterling so I expected an added degree of volatility and potentially further strength for the Pound if the data is positive. Thankfully the UK terror threat has now been reduced following last week’s awful events in Parsons Green, such events always have the potential to trigger unexpected swings on the currency markets.
After higher Inflation and a more hawkish (tough) stance from the Bank of England on Thursday saw the Pound rise, Friday saw Gertjan Vlieghe, a previously more dovish (softer) member of the Bank of England’s Monetary Policy Committee stated that he felt the time was ‘approaching when the rate may need to rise’.
Since the strength and weakness of a currency can be largely determined by the future path on the raising of interest rates, this overall bringing forward of expectations could well see sterling continue to drive forward. However, we have been in this situation many times in the last ten years since interest rates were cut to their record lows with economic conditions apparently ripe for a hike. This occasion does appear to have more depth but I feel ultimately there is very little chance of a hike in 2017 although 2018 does seem more possible.
Sterling may well rise a little further but I do expect a correction sooner or later just like a couple of months ago when the expectations were neutralised as Inflation fell. With plenty of political and economic uncertainty ahead if you need to buy a foreign currency with the Pound locking in the impressive gains of last week seems like a very sensible option.
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