Pound Remains Under Considerable Pressure

Last week was a very quiet one for the markets at the end of month calendar is absent of any key data releases for the UK. The pound remains under considerable pressure ahead of the October deadline for a Brexit deal to be agreed, with progress seemingly non-existent. Last week Michel Barnier crucially killed off any hope of Theresa May getting her customs union proposal agreed simply stating that the EU would not accept the whitepaper proposal which is an extremely important part of this deal. Both sides maintain that there are still big issues to overcome, and with the clock running down fast we can fully expect investors and traders to shy away from Sterling with the increasing threat of a no deal situation that would likely see rates plummet below post-referendum levels and test all-time lows against both the Euro and US Dollar.

GBP/EUR buying opportunity

After a heavy drop 2 weeks ago, GBP/EUR was the one pair able to make some partial recoveries bringing buying rates up to a 2 week high, and levels that could very easily prove to be peak buying rates for the coming months given the increasingly negative forecasts. Compared to just 1 week ago a €250k property is now around £2500 cheaper.

GBP/USD

Last week finished up with US GDP growth figures for Q2, a key release that could impact the Fed’s rate hike curve over the next 6-12 months. Markets were expecting a growth of 2.3% between April-June, however, actual results came in at an impressive 3.2%, the biggest quarterly growth since 2014. Whatever your thoughts on Trump, he is certainly putting America first as promised and the ‘terrific’ figures are beginning to show it which will keep the dollar in a strong position, limiting any recovery in cable rates.

The Bank of England Interest Rate Decision

This week is all about the much anticipated BoE meeting on Thursday, where a 0.25% rate hike is expected by the markets and is considered to be already priced in as much as 80%, even at the current exchange rates. What this means is that should a hike go ahead we should see a spike in Sterling exchange rates, however, this will likely be limited and short-lived given the downward trend of the pound, the negative backdrop of Brexit negotiations, and the fact that most the money is already on the table for this outcome. The alternative is the real risk that they do not hike again due to Brexit uncertainty and lower growth and inflation figures posted in July. This outcome could see heavy losses for Sterling exchange rates given the expectation and could very well remove one of the last positive elements currently propping up exchange rates at higher levels. If you have a currency requirement in the coming months, be ready to consider your options this week as this meeting could be pivotal for the weeks ahead. Friday is also the big unemployment non-farms payroll release for the US at 1:30 pm and as ever will have an impact on USD, EURO and GBP exchange rates.