Friday, 22 July 2016

Pound falls as business activity slows at fastest rate in 7 years

The Pound has taken a bit of a tumble this morning, following the release of UK Manufacturing and Services PMI data. This was the first chance to see what effect Brexit would have on the real economy, as the figures were for July, after the vote.

The number was the sharpest decline in 7 years, and shows a sharp downturn in the manufacturing sector. Here is how it affected the GBP/EUR rate:


The rate had climbed up to around €1.2040, but as soon as the numbers were released, you can see that it has fallen nearly 1 cent, but in the grand scheme of things it's not really too bad; the GBP/EUR rate is simply back down to where it was yesterday lunchtime.

I think it's a bit of a knee-jerk reaction to be honest, and I think that the rate will bounce back to around the €1.20 mark if not today then early next week, but any further gains are likely to be limited by fears that further economic figures, when they come, will also show the economy is suffering.

Thursday, 21 July 2016

Pound recovers to €1.20 vs Euro - what next for Sterling?

I'm back in action today after my break, and plenty has happened in the currency markets in the last few weeks. Sterling has strengthened against the Euro and other major currencies, due to Theresa May becoming our new Prime Minister, removing much of the political uncertainty that had put Sterling under pressure. The Bank of England also decided not to cut interest rates, which some had expected them to do. As the chart below shows, this caused GBP/EUR rates to rise from €1.17 to above €1.20 where it has since stabilised:


Political Stability helps the Pound


Before I jetted off to Menorca, it looked like the UK was in for a prolonged period of political uncertainty. The Conservative leadership race was underway, but when Andrea Leadsom pulled out of the race, it paved the way for Theresa May to become our Prime Minister. I think this is a good choice, and it also means we've avoided a lengthy 2 month leadership contest that would have been quite destabilising in what is a critical time following the vote to leave the EU. Markets hate any type of uncertainty, and this was one of the reasons the Pound was struggling.

I'm encouraged by our new Prime Minister and the markets certainly reacted positively, with the Pound rising when the news broke.

Interest Rates and the Bank of England


The other main reason for Sterling's rise is the fact the Bank of England last week chose to leave interest rates on hold at 0.5%. Many had expected them to cut rates by 0.25% and this had been partially priced into exchange rates. When they decided to leave things as they were, the Pound made some gains. I still think that the BoE will have to do something in the coming months, whether it's a cut to the base rate, or an increase to our QE stimulus programme. If either of these things happen in August, expect the Pound to fall.

What next for Sterling exchange rates?


Things are not as bleak as many had predicted in the immediate aftermath of the Brexit vote. The IMF have recently revised their gloomy predictions for economy growth, saying they expect the UK to grow at a faster rate than Germany and France. Once we leave the EU, we will also be free to make trade deals with other major economies, something the EU was unable to do. However, all of this is some way off, and while the immediate political uncertainty that was holding the Pound back has gone, we now face a prolonged period of economic uncertainty, and it's for this reason most major banks and analysts still expect the Pound to remain under pressure.

When the UK invokes article 50, probably early next year, the process of negotiation with the EU can start, and it will then take at least 2 years before everything is finalised. Until then, nobody knows what the future will hold, and this is likely to limit investment and confidence in the UK economy.

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This blog is an excellent resource for those that need to keep an eye on exchange rates, and find out what is moving the market. While it's impossible to predict in which direction exchange rates may move, having a sound knowledge of the what is happening and why can be invaluable in deciding what action to take, and when to fix a rate of exchange.

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Friday, 8 July 2016

If you need the best exchange rates, get a free quote.

My blog will be a little quiet for the next few weeks while I take a well-earned break, and so my usual daily market commentary will pause for a short while. I will be back in action with my regular currency updates on Friday 22nd July.

Our trading floor remains open however, and if you would like to speak to one of my colleagues to discuss your currency requirements and get a quote, follow the link below. We offer exceptional rates of exchange for anyone looking to convert £5k+ on a bank to bank transfer basis.

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....back in a couple of weeks :)

Thursday, 7 July 2016

Pound makes slight recovery, but forecasts remain gloomy

Sterling has recovered slightly today, following much better than expected Manufacturing and Industrial production figures. Later this afternoon we'll have a GDP estimate for the UK, with the actual true reading coming next month.

It should be noted however that the production figures, while positive, were for the month of May. We'll have to wait a little longer until economic figures for the 'post Brexit' period, and that's what the markets will be watching for, to see what effect the referendum is starting to have on the economy.

The slight up tick in Sterling today is something that those converting the Pound may wish to take advantage of. Nearly all major forecasts are all saying the the Pound is likely to fall much further in the coming months, due to the expected negative effects on the economy due to the vote.


(Live exchange rate graphs can be found here)
 

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