Hard times for the Pound with Brexit pressure

6 March, 2017

Tom Arnold

The last couple of weeks has been hard on the Pound with Brexit starting to heap on the pressure. The SNP have been pushing their desire for a new Scottish Independence Referendum once Brexit happens, and the House of Lords have been trying to amend the government’s bill to trigger Article 50. A break-up of the United Kingdom, particularly when we are already trying to cope with Brexit, would be a devastating blow to Sterling, and any derailing of the government’s control over the Brexit process is also viewed as very negative for the Pound. Once again uncertainty is what is causing problems – the Pound had been experiencing something of a resurgence with the government seemingly in control of the Brexit process, but as soon as there are bumps in the road, uncertainty floods back in, and the Pound weakens. Losses have so far been around three cents against both the Euro and the US Dollar.

The Pound’s situation against the Dollar has been further exacerbated by a burst of Dollar strength following adamant hints of another interest rate hike from the Federal Reserve this month. Various speeches on Friday last week from a selection of FOMC members only confirmed this with Janet Yellen being particularly direct in saying that employment goals are pretty much achieved and therefore a hike in interest rates will be appropriate as long as data remains on course.

Against the Euro losses have largely been due to Sterling weakness, but also a few positive pieces of Euro data have assisted the single currency. Marine Le Pen’s loss of the top spot in recent polls in the French Presidential election, has also caused a bit of Euro strength – a less controversial President is viewed as much more stable for the EU and therefore the Euro. More focus will come this week on the Euro, with European GDP and the ECB’s policy decision and statement due on Tuesday and Thursday respectively. There are no real expectations of any action from the ECB, but seeing what Mario Draghi has to say about the many issues assailing Europe and the EU in particular at present, could be revealing, and could influence the Euro’s position.

The week ahead is busy albeit not full of critical data releases until we get to the last two days of the week, where there are a mass of critical data in the form of the aforementioned ECB decision, UK manufacturing and industrial production numbers, UK GDP estimate and the ever-important US non-farm payrolls. From what Janet Yellen said on Friday, employment goals are not a concern, but a good number here will still be necessary for that interest rate hike to occur.

Australian Retail Sales
UK MPC’s Hogg Speech
US Factory Orders
US FOMC’s Kashkari Speech

Australian RBA Interest Rate Decision + Statement
UK Halifax House Prices
European GDP
US Trade Balance

German Industrial Production
US Employment Change

European ECB Interest Rate Decision + Statement
US Jobless Claims

German Trade Balance
German Current Account
UK Consumer Inflation Expectations
UK Manufacturing Production
UK Industrial Production
UK Trade Balance
US Non-Farm Payrolls + Unemployment Rate

If you have Sterling in hand and an overseas transfer to make, then the recent losses have been very expensive, but it is worth noting that there is no guarantee of a bounce back, and things could easily continue in this negative vein. The Brexit situation is going to be of huge concern to the Pound for the coming days and weeks, with Article 50 due to be triggered this month, and while uncertainty stays in the market Sterling will struggle. Here at Currency Index, we can help you to manage the risk of a falling market, so make sure to stay in close contact with your CI account manager, to be kept informed of exactly what is occurring.