Wednesday, 5 April 2017

Sterling moves higher on Services data

The Pound has risen this morning after better than expected UK Services Data. The number was better than the last release, and also beat analysts forecasts coming in at 55.00 showing expansion in the sector. Services dominate the UK economy, contributing about 78% of total GDP, and so it also has a big impact on the value of the Pound. The better result has sent Sterling higher against both the Euro and US Dollar.

Brexit takes back seat, for now


It again demonstrates that for the moment, Brexit has taken a back seat in terms of what is driving exchange rates, with the traditional economic data coming back into focus. The UK economy continues to perform robustly and many in the market think the Pound is undervalued and will bounce back. I tend to agree that the Pound has been unfairly punished since the referendum result, however it will probably be some time before we see GBP/EUR rates back to €1.30. Once Brexit negotiations begin in earnest the market will start to be moved by political events again and that will probably hold the Pound back from making any significant gains.

Fixing a GBP/EUR exchange rate


Those that need to purchase Euros in the coming months can freeze the current exchange rate for up to 2 years using a Forward Contract. This allows you to take advantage of the recent gains and fix a GBP/EUR rate that is within a few percent of the best it's been since last summer. It also protects you against the Pound weakening and allows you to budget for things like purchasing property in the Eurozone.

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What else could move the Pound this week?


There is a raft of data from the UK on Friday that is likely to move the Pound against other currencies. We have House Price information, Industrial and Manufacturing production figures, Trade Balance Data, and a GDP growth estimate. The numbers are already forecast well in advance and it's whether the numbers are better or worse than expected that will affect Sterling accordingly, much like this mornings Services Data.

Friday is also busy for the USA with Average Earnings and Non-Farm Payrolls. The latter often causes large movements in GBP/USD rates, as the figure usually comes in significantly above or below forecast.

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