Mark Carney pulls the Pound’s strings
1 July, 2016
As the first week following the EU referendum draws to a close, we find ourselves in a somewhat surprising situation. As expected the Pound is significantly weaker than it was on the eve of the vote – some eleven cents against the Euro and fifteen cents against the US Dollar, but most of that movement occurred immediately after the vote and in fact the Pound has been relatively stable over the course of the week. A stable Pound is not something anyone was expecting, with predictions of continuing loses and wild swings in volatility being spoken of by the fear-mongers in the days and weeks prior to the referendum. There are a number of reasons for this stability:
•The Governor of the Bank of England Mark Carney very quickly came out on Friday the 24th and assured the markets the Bank had made contingency plans for a Leave vote and as such were well prepared to sure up markets over the coming months and years ahead.
•The Chancellor of the Exchequer George Osborne came out early this week with a similar message and assured the world markets that we were well prepared and well capable of meeting this challenge.
•Probably most importantly – we aren’t actually suddenly out of the EU. There are many factors to deal with before Article 50 can be triggered and as such there is going to be a long period of limbo, where trade will continue exactly as it did before the referendum.
There is obviously going to be an extended period of uncertainty and that is why the Pound is down, but until such time as the next steps are taken, with a well prepared Bank of England, there is no reason to think we cannot comfortably weather the turbulence, hence the relative stability.
Mark Carney did yesterday cause somewhat of a drop off in Sterling when he further clarified the Bank’s position. He again spoke of the Bank being fully prepared and highlighted the massive volumes of liquidity within the UK banking sector and the stress testing that had been taking place, which was good news for the economy. But he did say that the Bank were likely to have to act in the short term to provide some stimulus in the form of interest rate cuts over the summer and possibly further QE. Both of these are Sterling-weakening actions and as such the Pound dropped across the board. Proving the stability and the confidence in the Bank that the markets have though – we did see Sterling rally and pull back some of those loses overnight.
This relative stability is great for those of you with a pre-arranged upcoming requirement to transfer your money overseas and indeed for those of you who have been considering buying a property or similar investment overseas it does provide a potentially good opportunity to take a breather and assess your plans. But it is worth noting that we are only six weeks away from a new PM being in place, and depending who wins that could see Article 50 triggered straight away. Article 50 is likely to cause the rest of those fear-monger’s predictions to come true as it will be the actual beginning of the Brexit, so if you do have a requirement in the pipeline or you do want to buy a property in the sun now, while the easy ability to do so is still there, he window of opportunity could be as short as six weeks.
There are a few data releases today that could have an impact on the markets, with European unemployment and manufacturing PMI due out this morning and US manufacturing PMI this afternoon, but with the focus still on the fallout from the referendum, it is unlikely they will provide anything other than a sideshow.
Make sure you stay in close contact with your Currency Index account manager to be kept informed of what is happening and exactly what your options are.
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