Brexit, Trade Wars and changes to central bank monetary policies, some of the key upcoming events in March that may affect exchange rates. Read on for information impacting the pound, euro, US dollar and Australian dollar for our thoughts on when to transfer currency.
As we end February the market is eagerly awaiting the outcome from the latest ‘meaningful vote from Theresa May. A flurry of resignations on both sides of the House of Commons have seen the political uncertainty stakes rising for the UK, although the pound has actually risen benefittingfrom the reduced chance of a no-deal Brexit. March is the key month for Brexit with the UK set to officially leave the EU on the 29th, sterling could therefore remain as sensitive as ever to the developing news.
I would expect that whatever the final deal appears to be, it will be finalised in good time before the 29th. Otherwise, the increased lack of clarity and continuing probability of a no-deal might trigger further resignations or problems for the Government. It is probable that the pound will continue with its sensitivity to any breaking news, the current projected outcome from the meaningful vote is for Theresa May to lose. This might then lead to Parliament taking over some control of the negotiations and the next direction on Brexit. We could see a majority develop as sentiment against a no deal Brexit grows.
There could still be progress with Mrs Mays deal if she can get the necessary concessions from Brussels, she needs to find a majority in Parliament which has so far proved elusive. The recent resignations might only further derail the possibility of the Brexit plan making its way through Parliament. Making a firm call on which direction events will take is very difficult but I am of the opinion that some kind of diluted compromise will be realised. Many dont think it will be a no-deal, although this possibility will not be quickly removed from the various outcomes on the table.
Economic news for March comes mainly towards the end of the month with the latest Interest Rate decision from the Bank of England (BoE) on the 21st March. It is likely the BoE will be commenting on the progress so far and we could even expect Mark Carney, or any other BoE members to make speeches through March offering their views on the plans. If the Bank are particularly negative this could adversely impact Sterling and the BoE also need to confirm they are making plans for a no-deal Brexit.
The week of the BoE meeting is a very important one with a number of other releases which could trigger volatility including the 19th March, when UK Unemployment and Retail sales figures are released. The latest inflation data is due on the 20th, followed by Public Borrowing data on the 22nd. Recent UK data has been impressive in one sense with very high employment and rising wage growth, however a decline in economic activity overall is a concern. Sterlings behavior will be difficult to predict with such conflicting outcomes.
The pound could enter March in a more buoyant mood as the market gains more confidence with Brexit not expected to be as disruptive as before. This will largely depend on events towards the end of February, which should indicate the type of Brexit we have on offer, but could follow the trend of giving us more questions than answers. The possibility of a second referendum might have increased and Brexit could be delayed, further increasing some of the uncertainty ahead.
March should see the pound remaining in sharp focus and news on what to expect for the 29th, might be known before that date. There is also a flurry of important economic news for the week commencing 18th March which could shape the pound ahead of the 29th. Clients with a position to buy or sell the pound now or in the weeks and months ahead may well benefit from a review of their position with our team, it looks set to be a potentially tumultuous time for sterling exchange rates.
The Euro entered much tougher ground in February as the economic and political reality of 2019 met with the previous, perhaps overly optimistic, expectations set in 2018. 2019 has been a year of increased global uncertainties and this has exposed some of the fragilities in the Eurozone, both politically and economically. The month ahead will contain some important news from both the European Central Bank (ECB) and also unfolding political news, none of which at present appear likely to help the euro.
The ECB will meet on the 7th, to discuss their latest interest rate decision and monetary policy statement. To understand the current behavior of the euro we need to go back to when the ECB embarked on a huge program of Quantitative Easing (QE) to encourage growth, back in 2015. The December 2018 ECB meeting saw the Eurozones Central Bank confirm the end of these measures and set a path to raise interest rates, which strengthened the euro.
Since then, the growth concerns in the Eurozone, epitomised by 0% growth for Germany and a recession in Italy, have contributed to many questioning the direction of the Eurozone economy and ECB policy. The early March meeting looks like a tough one for the policy team, who also need to tackle global risks from an economic slowdown. Trump has been talking up tariffs of 25% on the European automotive industry, something which would only put further pressure on the struggling German and European economy, and could see the euro weaken.
Politically, Spain has recently called an election for April and there are European elections due for May. Combined with the uncertainty in France as Macrons popularity wanes under pressure from the ‘gilets jaune movement, and also investor doubts over the political will of Italy to conform to Eurozone norms, the euro has a few tough questions to answer in March on the political side.
GBPEUR rates are likely to have a turbulent month ahead as Brexit nears the expected conclusion, officially set as the 29th March. Brexit has been the biggest driver on the pairing as investors try to gauge which direction Brexit will take. GBPEUR rates have moved nearly 6 cents in 2019 and whilst up at the higher levels of the last 20 months, could struggle on the remaining no-deal possibilities.
The ECB meeting early on the 7th and the BoE meeting 2 weeks later may see busy periods for GBPEUR levels as both Central Banks have important domestic and global considerations in the policy they set. If Brexit progress is made and the euro remains weak, GBPEUR could rise. A move higher than the recently seen levels cannot be discounted but GBPEUR levels have had a very nasty historical habit of rising on optimism, only for a surprise comment or piece of news to send them dramatically lower.
If no-deal appears to be very much back on the agenda this is likely to be a fresh test for the pound, clients with any GBPEUR positions in March and for the rest of 2019 might well benefit from a review with our team. The crunch month on Brexit and two Central Bank meetings indicates anything but a quiet month ahead for this pair.
March begins with an important deadline for US-China trade talks to have progressed. The market is not expecting fresh resolution but we could well have seen the deadline of 1st March extended. This was the date for the trade talks to have actually come to agreement which would provide the market with certainty. The dollar had risen in expectation of resolution but these expectations had cooled at the end of February.
The US dollar has been a victim of its own success coming into 2019 as the previous high expectations placed onto it meet the reality of a more uncertain 2018. The global economy is encountering more troubled waters, partly as a result of US foreign policy, and this has removed the need for the US Federal Reserve to hike interest rates as keenly as expected. This has seen the US dollar slightly weaker, particularly with increased political concerns over domestic politics, embodied by the recent shutdown and border wall debates.
March will be an interesting mix as US policy on trade meets fresh challenges, Trump has been eying up locking horns with the European automotive industry and the US-China spat has been the elephant in the room of global markets. The end of February saw face to face talks held in the US seek a ‘memorandum of understanding, in order to reach agreement. Expectations are that the US trade wars will continue to weigh on global confidence and will trigger spikes and falls in sentiment as they continue. Overall, the trade wars are viewed negatively but the US economy is viewed as being likely to come off as the least negatively affected, which is seen as positive for the currency.
Amidst the mixed messages for the greenback from the trade wars, there are also mixed signals from the US economy. US economic growth has slowed in 2019 reflecting concerns ahead of a possible US recession, however the employment picture remains very positive which is giving investors confidence. It does seem highly likely the US economy will continue to struggle ahead and investors are nervously eying up a possible recession, the Bank of England recently estimated a 20% chance of US recession this year.
The dollar may continue to retain its strength, by being the ‘best of a bad bunch, with higher interest rates and a so far solid economy keeping solid economic growth on track. However, the number of global challenges has increased and the US economy will find life harder going ahead, as the trade wars intensify and a global slowdown also increases, with China and Europe both suffering. The US dollar should remain contained in March, supported by investors as there are increasing economic and political challenges for the UK and Europe, which may see the US dollar favourite, as a hedge against increasing risks elsewhere.
GBPUSD interbank levels are flirting with the 1.30 level at the time of writing and with everything ahead for March, we could very easily be above or below 1.30 at different times. Brexit and Trade war news will probably be the biggest factor, but the month begins with US Non-Farm Payroll and Unemployment data on the 8th. There could well be lots of volatility as the market digests any news on the 20th and 21st March; the US interest rate decision and UK interest rate decision respectively.
If Brexit is passing positively GBPUSD could rise, if no-deal looks likely it may then fall. GBPUSD movements look largely to hinge on the latest Brexit and Trade Wars news, two exceptionally difficult events to predict, making keeping up to date with the market and your account contact here at FCD, all the more important.
The Australian dollar has not had a great year, having lost ground on numerous occasions as this commodity driven currency reacts to the increasingly more uncertain global economy. A series of wider economic and political challenges – not present some years ago when the Australian dollar was much stronger – are weighing on general sentiment which is a drag for the antipodean currency.
March will deliver some further news on the all-important Trade Wars which have been a big factor shaping the direction on the Aussie dollar, as investors look for evidence of how this is disturbing global trade flows, namely that of Australias largest trading partner China. China is at present struggling under the pressure of US trade tariffs and a 1st March deadline which may see the 10% levels increased to 25%. The Australian currency and economy is under pressure as the Reserve Bank of Australia (RBA) and others pencil in future interest rate cuts to ease the current malaise.
The Trade Wars are a key part of the recent behavior on the Australian dollar with investors awaiting the latest developments to form a view on the Aussie. The US and China are in talks at the time of writing to reach agreement on whether or not there will be a hike in the tariffs from 10% to 25%, most commentary expects there to be an extension in the deadline or for some kind of wooly agreement to postpone further escalation.
Rather than the Trade Wars themselves, it is likely to be the RBAs reaction to the developments which act impacts the Aussie more profoundly. The Australian Central Bank has been under pressure to confirm their position in recent years with waning expectation over whether they are going to hike or cut interest rates next. February saw some large sell-offs of the Australian dollar as expectations rose of a cut later this year, with the RBA having previously ruled this out.
March could therefore see further weakness for the Australian currency and the latest RBA Interest Rate decision is scheduled for the Tuesday 5th March, where it is more than likely they will offer guidance on the direction they will be taking, which could see the Aussie weaken. With the recent familiar factors of Trade Wars and a slowing economy weighing on global market sentiment expected to continue in March, so with it should the slightly weaker performance of the Australian dollar
GBPAUD levels finished February testing the post-Brexit highs in the mid-high 1.80s, excellent news for clients buying Australian dollars with pounds. The expectation is that Brexit will be the biggest driver on the pairing as the market eagerly waits for the latest news to determine sterlings direction.
The Australian dollar may remain on the weaker side, although we could see a small uplift if there is a pause in the Trade Wars. The impact of Brexit on sterling behaviour is probably factor causing most uncertainty, and clients looking to either buy or sell the Australian dollar against sterling look likely to be in for a busy month. The GBPAUD rate will react to the unfolding of developments on Brexit and the Trade Wars, two very tricky issues to forecast, which should give plenty to discuss on the pair in March.
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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