April 2019 was supposed to be the month when Brexit plans had been finalised, with the UK having one way or another been scheduled to leave the EU on the 29th March. Many forecasts suggested a weaker pound but March saw the pound at elevated levels, which might well continue into April as a softer Brexit becomes more likely.
The UK has negotiated an extension to the previous exit date of March 29th with two key dates for the diary of the 12th April and the 22nd May. The 12th of this month is significant since it relates to a forced exit date by the EU if the UK parliament does not back Mrs Mays deal by that date. The 22nd May is the date the EU has offered as an extension should the British parliament pass Theresa Mays EU Withdrawal Bill. With parliament having taken control to vote on alternative plans to the May deal, events in Westminster at the end of March and early April are likely to be critical to the performance of the pound.
Once again, it is the likelihood of the soft and hard Brexit options which is dictating sentiment. Whilst sterling is higher on the back of optimism of a reduced chance of no-deal Brexit, we could easily see either a General Election or Second Referendum negatively influencing the behaviour of the pound in April.
Sterling is often influenced by events in the early part of the month with the 1st, 2nd and 3rd April outlining the Purchasing Managers Index (PMI) surveys. This can influence shorter term volatility and will be a key guide for investors tracking the relative health of the UK economy. In one of the good news stories for the UK at present, Tuesday 16th sees the latest Unemployment figures released. At 3.9% the UK has very low unemployment, a good sign for the economy ahead.
Politics looks set to remain the dominant force behind the behaviour of sterling but there are some other events to monitor for assessing the UK economy and the pound. On April 17th, Inflation or Consumer Price Index (CPI) data is released. The Bank of England (BoE) confirmed in March that they are waiting to see what Brexit brings but will be carefully monitoring progress. With no meeting in April investors will be poring over the latest data sets for signs of negative impact from the uncertainty over Brexit.
April could now provide us with further news as to the final state of affairs on Brexit, as the market struggles to correctly value the current outlook. A softer Brexit could see sterling higher, but this option may already be priced in to the value of GBP a degree. If Mrs Mays deal fails then nodeal might become more likely and sterling might suffer; parliament does seem very keen to now avoid no-deal.
April is likely to be another potentially excessively volatile month for sterling and clients looking to buy or sell the pound might benefit from considering their medium-term currency requirements in light of this.
Euro weakness has been a defining feature of EUR in 2019 and April doesnt seem to hold too much to change this sentiment. The main reason for the euros twist of fate has been economic reality failing to live up to higher expectations. The March meeting of the European Central Bank (ECB) indicated fresh discount funding for Eurozone banks and a longer period of interest rates remaining on hold.
Political concerns are also rife with concerns over more populist and extreme governments seeking to shift the political direction away from the more centrist and integrationist journey embodied by Angela Merkel and Emmanuel Macron. Political concerns following the fallout from Brexit and the Trade War harming the European automotive industry are also a threat to the euro, the 10th April ECB Interest Rate decision will be a key focus this month in assessing the euros fortunes ahead.
The Eurozone economy gets important news on the 1st April with the latest Eurozone Inflation data. Low inflation was a key reason for the ECB to kick start their stimulus program which was followed by such euro weakness in 2014/15. The expectation is that continuing low inflation, well above the ECB target of 2%, will continue to keep the ECB holding fire on any possible interest rate hikes, thereby keeping the euro weak. The 10th April meeting will be a real focus for this month and might well see the euro weaker if the ECB continue to struggle to see a more positive outlook.
The 5th April is when Eurozone Retail Sales is due and then on the 15th the latest Gross Domestic Product (GDP) figures for the single currency bloc. Meagre growth of 0.2% in the final quarter of 2018 was undoubtedly the trigger for the ECBs more cautionary meeting in March, where they unveiled the stimulus above. Aprils first estimates of GDP in Q1 which will provide further news as to whether the recent downturn is likely to be temporary, or whether the Eurozone has bounced back.
Political issues in the Eurozone member states is a concern too, with all eyes on the European elections just around the corner. In particular Italy, Spain and France have more populist elements inside and outside of government seeking less control from the EU. This will only serve to undermine the strength of the uuro, as investors concerns over what lies ahead continues.
Pound to euro rates have of course been lifted in 2019 with GBPEUR hitting interbank levels of 1.18, very close to a 2-year high for the pairing. Reduced fears of a no-deal exit for the UK, combined with the political and economic concerns outlined above have all seen GBPEUR levels rise. Brexit concerns are likely to continue to play a big role in developments on the GBPEUR pairing and if the softer Brexit options become more likely it could result in sterling strength. The passing of Mrs Mays deal would be an example of this, as it would rule out no-deal.
Clients purchasing euros with pounds might wish to take careful stock of the improvements they have had. Based on the interbank exchange rate, €200,000 at the best rates of 2019 is worth £12,300 less than at the most expensive. The forecast ahead is tricky and it has been widely reported that sterling is almost ‘untradeable in the currency markets, because of the inherent difficulty in predicting what avenue Brexit will go down.
The US dollar is the worlds reserve currency and has been ever dominant in recent years, with the US economy firing on all cylinders, growing at a strong pace and creating lots of jobs. Despite repeated fears over a possible recession or downturn the US dollar should continue to perform well in April, particularly as global uncertainty makes the US economy and the US dollar appear the best of a bad bunch.
Concerns over a more cautious Federal Reserve bank (Fed) opting to hold fire on interest rate increases have done little to dent confidence in the currency, which with interest rates at 2.25-2.5%, is outperforming nearly all rivals. To compare, The UK has 0.75%, the Eurozone is 0% and Japan -0.1%. Against these peers it is easy to see why the higher rate of interest is continuing to encourage investors to buy US dollars and benefit from these higher returns.
The first Friday of each month sees one of the most keenly monitored economic releases with the latest Non-Farm Payroll (NFPR) data released on the Friday 5th April. This release is often volatile in detailing the change in non-agricultural employment. With just 20k new jobs confirmed in the March release, compared to 311k in February, investors will be closely analysing the data to see if the US economy has genuinely taken a turn for the worse.
In other economic news, Wednesday 10th is when the release of US Inflation data is due and 18th sees Retail Sales figures, before Friday 26th provides the latest Gross Domestic Product (GDP) numbers. All in all, the US economy is growing at a solid rate but with the Fed having largely paused their interest rate hike cycle, the market is eagerly looking for any clues that the US economy might not only have peaked, but could be on a path to worse economic times.
Donald Trump will continue to be closely monitored too; talk of the Trade War between China and the US is weighing on global sentiment and recent signs of a breakthrough need confirming. The US dollar might well rise in value if it appears that Trump has negotiated improvements for the US, any sign of break down might see the US dollar weaker.
April is a key month for Brexit and GBPUSD levels have ranged between interbank levels of 1.24 and 1.33 partly down to changing sentiment on Brexit. With the potential for further news to break any second and trigger volatility, clients looking to buy or sell US dollars and pounds may benefit from making careful plans in advance.
Overall, it is expected that a softer style of Brexit would see the pound rise, although much of the positivity here may already be factored into the current GBPUSD value. It is unwise to be taking too much for granted in this market and clients with a position to buy or sell might benefit from a quick review with our team to ensure they are fully up to date.
The Australian dollar is still struggling, having braced itself for further uncertainty over the outlook on global Trade Wars, which has been leading the Reserve Bank of Australia (RBA) to be linked to cutting interest rates in the future. The relative strength and weakness of the Australian dollar is heavily linked to sentiments on both global trade and attitudes towards China, ongoing uncertainty on such topics has seen the currency struggle so far this year.
April might see some key developments on the Trade Wars between the US and China, with the US convoy visiting Beijing as we end March, and their Chinese counterparts due to visit the US early April. Expectations have increased that we will soon be reaching some kind of agreement which will aid a deal; this might help the Australian dollar to rise in value although the market will probably need to see something concrete for it to make to make a consistent impact.
The first week of April is key with the latest RBA Rate Interest Rate Decision on the 2nd April and Rate Statement too. As mentioned above there is growing pressure over the outlook on interest rates which might see the currency weaker if the RBA acknowledge increasing global uncertainties. So far, the RBA has acknowledged weakness globally but remained noncommittal as to whether they are on a path to future cuts.
As well as monitoring events in Australia, we also must monitor Chinese economic news which can trigger volatility on the Australian currency. Chinese Manufacturing Purchase Managers Index (PMI) is released in the early hours of Monday 1st April, this reflects the Manufacturing industry and could well see AUD weakness. Recent releases have shown a decline in such activity in China, which may weigh on Australian exports of raw materials, and therefore unsettle the Aussie currency.
We have Chinese Inflation on the 11th and the 17th is Chinese Gross Domestic Product (GDP) data, all of which will provide further clues on Australias largest trading partner as detailed above. Expectations are that we will see continued strains in the Chinese dragon which could ultimately reflect poorly on the Aussie dollar. Thursday 18th is Australian Unemployment, another key factor and date to be aware of if considering any AUD currency exchanges. Naturally, any positive signs from China may see the Australian dollar find some form.
April is lining up to be a volatile month for GBPAUD exchange rates with possible firmer news on the next direction Brexit and the Trade Wars will take. These two topics have been the key events driving news on the pairing and have been far from easy to predict, owing to the various parties and factors involved. The current sentiment has seen GBPAUD rising to near post-EU vote highs of interbank rates at 1.88, as we are leaning towards a softer Brexit. This is however far from assured, and any fresh concerns that no-deal is a possibility or we are witnessing a further breakdown of confidence in the UK Government could destabilise the pound and drag GBPAUD rates back down.
Events globally seem likely to favour a weaker Australian dollar, but here too we might see a sudden shift in sentiment creating a reversal in the current trend. Any client considering a pound or Australian dollar currency exchange should have plenty of topics to discuss in April, please do highlight any position you are considering, so that we might keep you updated on what seem likely to be this month, fairly important developments.
If you are considering a currency transfer, buying a property abroad or looking to bring funds back to the UK from overseas, 2019 has a number of potential events which could create some excellent opportunities for well-prepared buyers and sellers.
In any event, our currency experts are on standby to answer any of your questions, so feel free to call our trading floor on 01494 725 353 if you would like to discuss a transfer.
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