Tuesday, 27 September 2016

Sterling/Euro remains under pressure due to 'Brexit' uncertainty

Sterling has been unable to recover the losses we have seen over the last week, and it remains stuck at around €1.15 vs the Euro, and $1.30 vs the US Dollar. It's a very quiet week in terms of data releases, so with not much else to go on, global investors are shunning the Pound due to continued uncertainty following the EU referendum.

It's starting to look more and more likely that there will be a 'hard' brexit, meaning that rather than try to negotiate remaining part of the single market, the government will give up access to it so that they can impose immigration restrictions. This would also hamper trade, and therefore the Pound is under continued selling pressure.

With the UK government back in action after the summer break, further developments about 'Brexit' could come at any time. If these developments stoke further fears and uncertainty then the Pound could fall further. Looking at recent trends though, and you will see that since the referendum GBP/EUR rates have fallen to €1.15 several times, before recovering and heading higher towards €1.18/€1.19 again. This is because economic data releases had been positive and pushed Sterling higher. With a distinct lack of data this week though, it's hard to see where any good news will come from that would push the rate back up.

Tomorrow (Wednesday) there is a speech by the European Central Bank president Mario Draghi. His comments often move the GBP/EUR rate around. If he is negative about the EU economy and hints at further stimulus measures, it could provide some much needed support for Sterling/Euro exchange rates. Later in the week we have UK GDP figures and services sector data. I expect GDP to show quarterly growth at 0.6%. Any lower than this would likely push the Pound lower again.

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