Brexit bombshell gives Sterling a boost

4 November, 2016

Ashley Finill

Yesterday saw the currency markets have one of the most volatile days of 2016 with a raft of key data including the BoE’s interest rate decision and major information on brexit released which added more fuel to the ever growing seemingly uncontrollable fire. It has been announced that parliament will now have to vote on whether the UK can begin the process of leaving the EU causing fireworks in the currency market. This has once again brought more confusion and uncertainty with this unpredictable situation with Brexit. The Government is going to appeal the decision ruled by the High court, this could prolong the UK’s exit even further than march as the hearing from the appeal will not be addressed until December potentially putting the plan for to invoke article 50 in March in jeopardy. Although this decision from the high court throws a spanner in the works and has created more uncertainty it did hand Sterling a much welcomed boost gaining over a cent against the Euro and nearly 2 cents on the Dollar over the day’s trading. This news has brought a great opportunity for Euro buyers to take advantage of this 5 week high as it may be short lived as an official spokesman for Prime Minister Theresa May said the government had “no intention of letting” the judgement “derail Article 50 or the timetable we have set out. With that being said these gains may not be around for long and should article 50 be invoked in March then expect Sterling to fall further.

In the morning at 9.30am Markit Services PMI data was released and once again delivered strong figures which gave the Pound a small boost to start the day off. In the afternoon The Bank of England governor Mark Carney held a press conference in regards to the interest rate in the UK. It had been expected in the past few months that the BoE was once again going to slash interest rates by the end of the year, this however was not the case . Mark Carney explained “In light of the developments of the past three months, all Monetary Policy Committee members agreed that the guidance it had issued following its August meeting regarding the likelihood of a further cut in the bank rate had expired” The Governor said that it is expect that inflation could rise to 2.7% next year which was blamed on the slide in the pound since the referendum, which is driving up prices of imported goods. Increasing inflation would generally be a bad thing for the UK adding more woes to the UK.

Only 3 working days in and November has already been a very busy month with data and political issues sending the markets into a frenzy and this can be expected to continue as next week the presidential election in US will take place on 8th of November. The long running favourite Hillary Clinton has recently received bad press again in relation to deleted emails which still is an ongoing investigation and as a result has given Donald trump further support bringing the leadership race much closer than was initially thought, although Clinton may be the front runner this as we know with Brexit doesn’t make it a sure thing and should Trump be elected then expect the dollar to take a massive hit, analysts are predicting sterling to plough into the 1.30’s should the shock of a Trump win happen. If you’re selling dollars and holding out for further gains it may be prudent to get something done sooner rather than later and snatch at these 32 year highs as these massive gains could be eradicated should Donald be handed the keys to the White House.

Again today is likely to be a highly volatile day as the markets continue to digest the latest Brexit information but there is also key data releases coming from both the Eurozone and the US today. In the morning the Eurozone will release market services PMI data along with producer price index which are both predicted to post better figures from last month, should this be the case expect the Euro to recover from its recent losses and send the Pound into reverse. Later in the afternoon key data releases come from across the pond as the US announce both non-farm pay rolls and the unemployment rate figures, these figures are also expected to make an improvement from last month’s release. With these key data releases all expected to go against the pound it could see Sterling’s gains made yesterday go up in smoke, If you have a big transfer coming up this is a great opportunity to take advantage of this spike for Sterling, leave it to chance or waiting for the rates to improve further may prove to be a costly decision.

As always stay in close contact with your account manager here at Currency Index for information and friendly guidance.