Whilst the news surrounding Theresa May is settling, what happens now in regards to Article 50 and negotiations with the EU will determine the Pound's strength.

Sterling strengthens as May becomes Prime Minister

With Sterling exchange rates across the board having fallen dramatically following the vote to leave the European Union three weeks ago the Pound appears to have picked up owing to Theresa May replacing David Cameron. Following the Brexit vote Article 50 has yet to be triggered. A few months ago Cameron claimed that he would trigger Article 50 on the morning of the vote but instead announced his resignation. Boris Johnson has been brought in as Foreign Secretary which has surprised many and owing to his stance regarding the Brexit and Philip Hammond has replaced George Osborne as the new Chancellor.

The leadership race began with 5 and was due to last for 9 weeks. With this now being cut short the political stability has helped to strengthen Sterling against all major currencies. Theresa May was a big advocate of staying in the European Union but in a press conference earlier this week she stated that ‘Brexit means Brexit.’ However, I still think we will be months away from this being officially announced. Indeed, an online petition has called for a second EU referendum with over 4 million signatures. The debate will now take place on 5th September but it does not mean that the UK will hold a 2nd referendum on the subject.

Will the Bank of England cut interest rates?

Bank of England governor Mark Carney was a big supporter of the Remain campaign and since the announcement of the Brexit vote he has come out and suggested that the UK could look at cutting interest rates or increasing the volume of Quantitative Easing. If either of these policy changes occur then I would expect the Pound to fall again. However, even though the odds are quite likely that the central bank will act later today I think it would be a bit too early for them to do anything because of the appointment of Theresa May.

UK interest rates have been at an historic low of 0.5% since March 2009 and prior to the recent vote to leave the European Union the BoE was gearing up for a rate rise at some point next year. On 5th July Carney stated that the ‘Bank of England is also able to provide substantial foreign currency liquidity if needed.’ Therefore, if you’re worried about what may happen later and you have a requirement to either buy or sell Sterling you may wish to look at buying your currency prior to the release later on today.

Todays BoE Interest rate decision could impact Sterling, talking to one of our brokers ahead of the event could be useful. Call us on 01494 725 353.

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