New Lows for Sterling
4 October, 2016
October has begun much the same as September finished for the pound, with continued losses as the downward trend combined with a negative Brexit backdrop encourages further sell off of Sterling. The pound found itself at a 3 year low against the Euro as Monday’s trading opened after Theresa May confirmed at the weekend once again that Brexit means Brexit and that article 50 will indeed be invoked by no later than March 2017. Following this confirmation, traders took opportunity to sell the pound as the market opened which gives great cause for concern as to what the market reaction will be when the event finally takes place in 5 months time.
In addition to the timeframe confirmation Theresa May also took a very stubborn stance on behalf of the country to prioritise the voters desire for immigration controls over access to single market, again going against all the promises made by the leave campaigners that we would be able to have both. This then poses a very difficult couple years ahead for the UK to negotiate efficient trade deals with the rest of world in what the prime minister has described as a ‘hard Brexit’. The currency markets are particularly unsettled by the prospect of the UK leaving the single market and so it seems that the tough times for Sterling are only just at the beginning.
Here was one piece of good news yesterday and that is that UK manufacturing grew at the fastest pace for 2 years with PMI coming it at 55.4 against forecast of just 52.1. last month these sort of figures gave a welcome boost to the pound however it seems the latest sentiment and potential for further central bank stimulus in November are causing these figures to fade to insignificance. It could also be argued however that these figures would be expected to improve due to the weaker pound since the referendum, something which in fact has many benefits to the economy during the next couple years as we negotiate our new trade deals. After all a cheaper pound is much more appealing to any countries who wish to import from the UK.
Today’s focus for the UK is on Construction PMI at 9:30am and for the Euro-zone producer price index is released at 10am. In what is likely to be a difficult few months ahead, contact your account manager today to discuss the best options to maximise your exchange in this difficult market.
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