Hard Brexit in focus and could it mean the end of the UK

24 October, 2016

Tom Arnold

Last week was a more positive week than we have seen for some time for the Pound, with a combination of reasonably good data and a rather dovish Mario Draghi, giving the Pound a bit of respite across the board and most notably against the Euro, with rates currently two cents above the recent five year lows against the single currency.

The spectre of Brexit is still running the show though, highlighted over the weekend by the head of the British Bankers Association explaining that most banks now have a team specifically in place to work out how they could relocate outside of the UK. Expectations are that many smaller banks could be gone before Christmas this year and some of the larger ones as early as next year. Paris is the favoured destination with the French currently on a massive charm offensive to persuade banking CEOs to relocate to Paris to protect their passporting ability, which would likely be lost if Theresa May continues down the hard-Brexit route. The UK financial services sector is critical to the UK economy, and this mass relocation would be nothing short of a disaster if realised over the coming months.

Today we see Theresa May meet with the leaders of the devolved UK countries, in what could be a testing meeting given the backdrop of a proposed second Scottish independence referendum. If Brexit starts to become synonymous with a break up of the UK could the majority who voted last June start to regret their decision?

The week ahead is a busy one, with various data releases out both home and abroad, most notably speeches from the heads of the Bank of England and the ECB on Tuesday, and UK and US GDP on Thursday and Friday. It will also be interesting to see if the various pieces of European data give backing to the theory that the ECB needs to do more to provide impetus to a stumbling European economy…

German Manufacturing PMI
German Services PMI
European Manufacturing PMI
European Services PMI
US Manufacturing PMI

BoE Governor Carney speech
ECB President Draghi speech

Australian CPI Inflation
German Gfk Consumer Confidence Survey
UK Mortgage Approvals
US Services PMI
US New Home Sales

US Jobless Claims
US Durable Goods Orders

German CPI Inflation

With the downward momentum for the Pound temporarily halted and even slightly reversed it is probably a good opportunity to consider securing your currency in advance of an upcoming requirement. It would be great to think that this turnaround could be the start of the Pound’s recovery but with Article 50 and a hard-Brexit due to be triggered in March 2017 and the potential break up of the UK back on the cards, it seems only a matter of time before Sterling starts to struggle again.

Make sure to get in touch with your Currency Index account manager to be kept informed of exactly what is happening, and to discuss the options that are open to you.