Sterling in the spotlight with Brexit on agenda

This week Theresa May will summon ministers to Chequers to discuss plans for the UK’s withdrawal from the EU. While the government has confirmed that Article 50 will not be triggered this year, markets remain extremely sensitive to any plans or announcements around the UK’s Brexit strategy, and having been away from the headlines in recent weeks, such a strategy is now said to be top of the government’s agenda.

German vice-Chancellor Sigmar Gabriel has taken the opportunity to re-emphases that the UK cannot leave the EU and still have the “nice things” about Europe, citing the risk of contagion across other member states, who may opt to leave if the UK’s exit proves to be beneficial. The whole future of the EU is seen to be in doubt, and therefore there is an incentive for the UK to experience an extremely tough time when it comes to negotiations.

None of this is good news for the Pound, which has enjoyed a mini-resurgence in the last week, reaching its best levels against the Euro and US Dollar since the Bank of England cut interest rates and extended QE in early August. There was very little movement for exchange rates on Friday or yesterday, which was of course a bank holiday in the UK but a trading day in much of the rest of the world. Rates for sending US Dollars abroad did however drop on Friday, after Federal Reserve Chairman Janet Yellen used a speech at Jackson Hole to say that the case for raising US interest rates had “strengthened” – could we see a US interest rate rise and a more expensive Greenback in September?

Back to business as usual
After the bank holiday we are now only 2 days away from the start of September and nearing the end of the summer holiday season. This is reflected with a very busy calendar of economic data this week, including today’s figures from the UK (mortgage approvals), Eurozone & USA (consumer confidence), and Canada (current account), all with the potential to move exchange rates. Tomorrow sees further unemployment and inflation figures, and the main news for the US will likely be Friday’s non-farm payrolls numbers, the main monthly measure of the American jobs market.

So with ministers returning from holidays, Brexit talks on the UK agenda, a hostile EU negotiating table, US interest rate rises, and plenty of economic figures to digest, we could be seeing some volatile weeks ahead for the Pound. There is certainly a risk that the next major move could therefore be sterling-negative – so if you have overseas transfers to make between now and the next bank holiday, which is sadly not until Christmas, contact us at Currency Index for some help and to discuss all your options to help minimise your exchange rate risk.