The main event on Sterling exchange rates remains, yes you have guessed it, Brexit. Sterling has bounced back on the news that Michel Barnier is prepared to negotiate a better deal than the markets were currently anticipating.
Despite this recent positivity, there remains many unanswered questions over what the final arrangements will look like – the market is still rather confused about just what Brexit means. The Pound is not out of the woods just yet and will remain sensitive to any further important news.
September may prove a turning point for the Pound as the market is eager to learn of any further significant news relating to Brexit that will drive some direction on the Pound. Economic news will more than likely take a backseat as political events towards the end of the month have the potential to provide further insight into how much weight to give Michel Barniers recent comments, and to provide some insight into the kind of Brexit the market can prepare for.
Probably the most important time on the economic release side is the week of Monday 10th where, on that day we have Manufacturing and Industrial Production data, plus important GDP, Gross Domestic Product data from the ONS, Office of National Statistics and the NIESR, National Institute of Economic and Social Research.
Then Tuesday 11th is Average Earnings and the Unemployment Rate data followed by the main event on Thursday 13th, the Bank of England Interest Rate decision. Following last months hike in interest rates, no change is expected but it will be interesting to hear the latest commentary. Any deviation from the last meeting where Carney made clear no further hikes are forthcoming could unsettle the Pound.
Brexit and UK politics remains the key talking point for Sterling and there are a few events in September to monitor. MPs are due to come back from their summer recess on September 4th and it will be interesting to see if the turmoil previously engulfing Mrs Mays position remains a concern.
Sterling might find itself in a more volatile position at the end of the month as September 18-20th sees an EU Summit in Austria. Brexit negotiations are not directly on the agenda but are bound to feature and any news or headlines may shape Sterling exchange rates.
September 30th is also the Conservative Party Conference where speculation is mounting over a leadership challenge by Boris Johnson. Will the more ‘hard Brexit elements in the party seek to jeopardise Mrs Mays position and the recent progress, to meet their goals? Lack of support for Mrs Mays plans could still feasibly see a second Referendum or another General Election.
The Euro has been performing better against most currencies on the prospect of an interest rate hike in 2019 and the plans of the ECB, European Central Bank to end its monthly stimulus program by the end of this year.
Continued strong economic performance has seen the ECB become more positive and bullish in its assessments and economic news will be vital for the Euro in September as investors monitor the economic data, to check it matches the tone of the commentary from the ECB.
One of the most important dates could be Thursday 13th, when we have the latest ECB Interest Rate Decision and Press Conference. The expectation is a continued pursuit to raise interest rates and end their current QE, Quantitative Easing program. This might yield further Euro strength unless we see a deviation from this current path.
Another factor to sway the ECBs decision-making is the outcome from Trade Wars with the US. A recent soothing in tensions between the EU and US on trade has also helped the Euro, as it makes future economic growth stronger and increases the chance of the ECB following up their policy aims.
Important economic news on the Euro is Wednesday 5th Retail Sales, Fri 7th GDP, Gross Domestic Product and Inflation data released on the 17th and 28th. All releases would be seen in the light of the current path to raise interest rates in the ‘summer of 2019, and the plans to withdraw the QE program.
Political issues are also important for the Eurozone but the market is confident in the current outlook. Whilst there are concerns over the political will to tackle the immigration issues present across Europe, the overall belief is the worst is now over. Italian borrowing costs have recently risen to 4 ½-year high and such news could act as a potential thorn in the side of Euro. However, with Mario Draghi, President of the ECBs promise to do ‘whatever it takes to shore up finances of struggling Eurozone nations, the market remains contained.
Michel Barniers recent comments that the UK will enjoy some kind of ‘unique deal has helped to drive the pound higher but we do need to see further clarification on the detail to see a sustained move higher.
GBPEUR rates had recently fallen to its 2018 lows of sub 1.10 on no-deal Brexit uncertainties and such issues will not easily evaporate, they could weigh on the performance of the pound. It is possible that Sterling to Euro rates will find familiar ground back in the 1.10-1.15 interbank range familiar occupied since September 2017.
September offers some potential for meat on the bones of Brexit to drive sterling higher, or indeed lower. The market has been struggling with a lack of detail to force a break outside of the levels and a series of political events may well provide some opportunity for some interesting movements on GBPEUR rates.
Thursday 13th is a key date in September with both the Bank of England and the ECB interest rate decisions. Euro buyers with pounds awaiting a spike could see some opportunity here but the Euro looks likely to continue to prove an expensive currency to bet against.
Political events to shape Brexit are the 20th EU summit and Conservative Party Conference on the 30th. GBPEUR rates will continue to take direction from the perceived direction on the UK plans to leave the EU. Positivity here may result in the re-testing of the mid teens in the 1.13 to 1.15 interbank region, whereas further likelihood of a no-deal could adversely affect the rate, possibly under the 1.10 barrier.
Given the political and economic events, there is a likelihood that GBPEUR may trade in the 1.10-1.14 level for September. There is some added potential for a more significant spike outside of these ranges should we see some of the outside events predicted come to fruition, eg a strong leadership challenge by Boris Johnson (GBP weakness) or signs of a very positive deal for the UK and the EU (GBP strength).
The US Dollar has gently begun to unwind following a very positive period in August where it reached fresh highs against all the major currencies. Expectations for further improvements do now appear a little limited as the market tries to gauge future realistic expectations.
Much of the recent improvement is hooked on high hopes for the future, which could now come into jeopardy. Next year is touted as a time when the recent positivity surrounding the US Dollar begins to cool and many suggest that now might be a peak for the US economy.
It was said earlier in the year that Donald Trumps tax plans would give the economy a boost in the short-term, but that longer term it might not be so positive. The Gross Domestic Product data for August was very strong showing 4.2% growth, this kind of pace will be very hard to keep up.
Important events in September will be Wednesday 26th which is the Federal Reserve Interest Rate Decision. Expectations are that the Fed will raise rates but with the Fed having already mentioned they have one eye on when these hikes will stop; the US Dollar will not necessarily keep rising.
The Fed are also expected to hike again in December so the market will be looking for clues as to how likely this will be. Friday 7th September is the latest Non-Farm Payroll and Unemployment data. Thursday 13th is Consumer Price Index Inflation data and Friday 14th is Retail Sales. Any signs the US economy has peaked could see further losses for the US Dollar.
If it is not the US economy failing to meet the high economic expectations set, that ultimately cools interest in the greenback, it could easily be Donald Trump and his ability to disrupt the consensus. Donald Trump is in the firing line for a series of scandals, which have seen his previous campaign manager and his attorney appear before authorities in the US.
Trade War concerns with China and also the problems with NAFTA arrangements could also unsettle the US Dollar. I expect these issues to continue to be a driver and they could easily see the currency weaken.
The positive Brexit news from Michel Barnier, which boosted GBPUSD to rise above 1.30, might ultimately be short-lived.
For the Pound to really benefit, we need concrete news on just what this means. September might well offer this opportunity but the Pound will likely face increased volatility in the next few months as we learn more about what Brexit means.
There is a possibility that GBPUSD could trade into the 1.30s if any news on Brexit helps the Pound to rise against a weaker US Dollar. Whilst the fundamentals are likely to still support a stronger US Dollar against Sterling, the cooling of enthusiasm could lead to an improvement in rates for US Dollar buyers.
The Australian Dollar looks like it could lose ground in September as uncertainty over the political direction of the country shapes up and increases. Recent news saw Australia lose its Prime Minister and a new PM, Scott Morrison coming in.
2019 might well see an election and political uncertainty will always act as a driver on currency rates. Continued uncertainty could see the Aussie struggle and with the market eager to see the possibility of any interest rate hike being scaled back.
The RBA has been gently looking to raise interest rates and whilst there had been an expectation this could happen in 2019, a recent softening in some of the domestic data might upset this picture. Concerns over China and the Trade Wars will also shape the direction of the RBA as they have to consider any negative impact from global events.
The beginning of the month is always a key time for the Australian Dollar with Monday 3rd Retail Sales and Tuesday 4th the RBA Rate Statement and Interest Rate Decision. Wednesday 5th is the latest GDP news, which might also be a market mover. Further important economic news is the Thursday 13th with the latest Unemployment and Participation rate information, followed by Tuesday 18th RBA Meeting Minutes.
Falling house prices and concerns over consumer spending are all weighing on the economic health of Australian consumers, which could spell problems ahead for the Australian Dollar.
The Pound to Australian Dollar exchange rate has been rising on the improved outlook on Brexit and suggestions the UK might get a more favourable deal. In the event that a no-deal scenario is ruled out, this would result in Sterling strength which could see GBPAUD back over the 1.80 interbank level.
This potential seems more likely too given the basket of uncertainties politically and economically in Australia. GBPAUD levels could test the 1.80 level but it would take some sustained good news to remain above this important level of resistance.
We have a history of the Pound rising and falling on headlines, sterling should remain very sensitive to the news. GBPAUD levels might be in for a volatile period as the market has to price all manner of different political and economic events in both Australia and the UK, and in the global economy.
Any news on Brexit would appear to be one of the main drivers behind GBPAUD rates, and it may be that interbank levels between 1.75 and 1.83 are seen during September.
For information on the economic factors with the potential to impact your currency exchange going into October, download our latest monthly currency forecast below.
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