Tuesday, 20 September 2016

Sterling goes from bad to worse

In yesterday's post I said that there was nothing on the agenda that would move Sterling, other than continues concerns over 'Brexit' and this has proved to be the case. There have been no economic data releases of note today, however the Pound has been in decline all day, dipping into the €1.15's vs the Euro, and below the $1.30 mark vs the US Dollar. Here's how GBP/EUR has fared over the last few weeks:



As you can see, the rate has slipped by around 4 cents so far. The reason is simply the concerns, both political and economic, surrounding the UK's exit from the EU. In the month's following the vote, the UK economy seemed to be riding out the immediate shock pretty well, and certainly the disaster many were predicting didn't materialise, however the Pound is now starting to suffer. I mentioned yesterday that there were rumours that the UK would give up access to the single market in order to impose immigration restrictions. This is pushing the Pound lower, as it has serious implications. If we leave the EU trading area, then it risks our Financial Services industry being able to continue trading freely, and these services make up 10% of our economy as a whole.

If true, it could be a very clever negotiating tactic, as it's the main starting point for those in Europe who have said if we want to remain part of the EU trading block, we have to accept all the other rules that go with it. If we start our negotiations based on the fact we don't expect to have free trade, it removes all the decent cards the EU holds. There's no reason we can't just trade with the EU anyway, and simply pay tariffs as we do with the rest of the world. It would therefore give us a much stronger negotiating position. It's certainly going to be an interesting few months ahead, so watch this space.

In the short term, will the Pound fall further?


This week there's hardly any data to move rates, which is why Sterling has probably been affected more than normal by these Brexit rumours. Tomorrow will be important, as any direction the FED give to future interest rate moves can also affect the Pound. If they hint at a further hike, then given the UK have hinted we're cutting our rates again soon, investors will dump the Pound and buy the Dollar, so there is potential for the Pound to fall further still.


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