Brexit concerns hit Sterling
29 June, 2018
The last week has seen increasing pressure mounting on the pound in the lead up to the EU summit that kicked off yesterday. A lack of progress in the Brexit trade talks is creating a growing concern that we could be facing a ‘no deal’ situation come the end of the year, something that could be heavily damaging to Sterling exchange rates. The market open yesterday saw the pound sold below key support levels against the both the Euro and US Dollar that then triggered further selling throughout the trading day. GBP/EUR has now broken below the stable range of the last few months and dropped to the lowest levels seen since early March. Similarly, cable continued its decline to lowest levels since last November with little optimism of a recovery anytime soon.
Many people could be forgiven for being more optimistic last week after the MPC voted 6-3 against hiking rates, as the extra vote for a hike would typically see a more speculative market to support the Pound. Unfortunately one of the MPC members who voted for a hike has now left and new member Jonathon Haskell has hinted that he is unlikely to vote for a hike until the end of 2018, leaving the pound even more exposed in the coming months with a real chance of the votes returning to 7-2 in August.
This time last year rates were in exactly the same position, and a lack of Brexit progress and lack of monetary policy change drive rates down to 1.07 within just 6 weeks. Given circumstances are very similar at present, but with even lower inflation and lower growth, it is not unreasonable to expect a similar movement in the coming months unless Brexit makes significant steps in the right direction.
Today we finish off the month with a couple of release for the UK and Euro-zone whilst the EU summit also continues with headline announcements likely over the weekend. At 9:30 am we have the final revised figure for UK Q1 growth, expected to remain at just 0.1%. Following at 10 am is the Euro-zones latest inflation figures. For more information on how you can protect yourself from any drop in exchange rates, contact your broker today and ask about our Forward Contracts that are proving very popular in these market conditions.
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