Multi week lows for Sterling as Brexit fears return

2 March, 2017

Rob Bastin

After a flat months trading in February, March is set to bring back the volatility levels with a number of key world events coming into the market’s focus. Sterling, the Euro, and the US Dollar all have major events in the coming weeks that will ultimately shape the currency markets. For the UK the pressure is very much back on the pound with Article 50 expected to be invoked within the next couple of weeks, or at very latest before the end of the month. Rumours are also building that triggering Article 50 will set a path for Scotland to announce a 2nd independence referendum with an aim to separate and keep Scotland in the EU. Both of these events could be very damaging to Sterling so March could present a tough ride for our currency. The month has already kicked off with weaker than expected growth figures in the Manufacturing sector with PMI recorded at 54.6 in February, down from 55.9 in January. Sterling subsequently finds itself trading at a 2 week low against the Euro and a 6 week low against the stronger US Dollar.

Aiding the pressure on Sterling yesterday was the House of Lords who overturned the governments bill to invoke Article 50 and voted for an amendment to protect and guarantee the rights of EU citizens currently living in the UK. The government however are reluctant to give this assurance without receiving the same guarantees for UK citizens living in other EU countries. The bill now goes back to the House of Commons for review of any further amendments, or to accept the changes proposed by the Lords. This delay means the government will not be able to invoke before the EU summit on March 9th, with timing now likely to be between 15th March and the end of the month.

GBP/USD rates were further boosted in the afternoon session as their own Manufacturing figures surpassed expectations, increasing to 57.7 from 56 last month. The US Dollar remains strong as the markets continue to speculate on the possibility of a rate hike on March 15th. This same date is also a key date for the Euro this month, as Holland will be holding their general election. Current polls suggest that Geert Wilders, right wing leader of the Party for Freedom is currently in the lead which could spell trouble for the Euro due to his intentions to pull Holland out of the EU.

The day ahead continues with the busy data calendar, with UK Construction PMI at 9:30am, followed by Euro-zone Inflation figures and Unemployment rate at 10:00am. The afternoon session focusses on the Loonie with Canadian GDP figures at 1:30pm. What is for sure this month is that the risk levels for anyone holding out to buy currency are significantly higher than in recent months. To make sure you don’t get caught out with the volatility, stay in close contact with your broker for any imminent requirements.