Gains made as Queens Bank back the Pound

18 January, 2018

Simon Eastman

Sterling gained strength over the course of Wednesday despite a lack of any data for traders to go off, as Coutts stated they continue to back the pound to make a recovery over 2018.

According to the Queens bank, investors should continue to bet on the pound which it sees as a long-term safe bet, mentioning they see it rising over the year against the majors like the euro and US dollar. Its been their strategy since the beginning of 2017 to bet on sterling against a basket of 7 other currencies, which it states t will continue with throughout 2018. Last year it returned a yield of 2.1 percent among their other recommendations which gave an overall yield of over 11 percent for their clients.

This view does all depend on the Brexit negotiations though according to the Coutts MD, Mohammad Kamal Syed, who mentioned that prolonged negotiations in the next round of trade talks would be destabilising for the pound, by affecting the required inflows of foreign investment needed to reduce the trade deficit.

As previously mentioned in our daily notes, if talks at the next round of Brexit negotiations stall lie in the first round, the pound will be in for a rough ride. With those talks due to start in a matter of weeks now, if you have a transfer coming up in that time, it may be prudent to lock in the exchange rate now on a forward contract. GBP/EUR is up at the top of the range we’ve been trading at for some time now and GBP/USD is the best since the referendum in 2016.

Elsewhere the Loonie weakened off as the Royal Bank of Canada increased their headline rate from 1 percent to 1.25 percent, as expected. One would normally expect to see some currency strength off the back of higher interest rates but with the US threat to leave the North Atlantic Free Trade Agreement as a major concern to the Canadian economy, this had the opposite effect. The threat to the economy is leaving investors dubious that we will see another rate increase, as had been previously thought, by April on top of the one yesterday, which looks to have been priced out of the market as the Loonie lost a cent against sterling.

Today is yet another quiet day for data, with nothing fro the UK and just a speech from ECB member Coeure this afternoon. We do have a raft of mediocre US releases surrounding house builds and sales plus some employment data but nothing to seriously move investor sentient which has of late been firmly against the dollar and more aligned with the single currency euro. With the gains made yesterday by the pound, we could well see some profit taking which may send the pound south again.

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