Revival for the pound but for how long

13 July, 2016

Ashley Finill

Yesterday was a somewhat better day for the UK in these testing times as it was confirmed that Theresa May will be taking the reins of the United Kingdom as the new Prime Minister. The last cabinet meeting with David Cameron as Prime Minister was held as he prematurely moved out of Number 10 Downing Street to make way for the new occupant the former Home Secretary of the Conservative party Theresa May to officially commence her time in office. This news reflected positively on The Pound as it clawed back a couple of cents against the Euro and the US Dollar in the day with the market following this highly volatile trend during this very uncertain period for the country in many years. This positive political news is certainly welcomed for Sterling due to the recent freefall in the market since Brexit was announced over two weeks ago, however this could be short lived as there are still a few issues still to be addressed in these uncertain times for the UK’s economy.

One being when Article 50 will be invoked and given a date by the new Prime Minister which could be imminent providing the mechanics of leaving can be agreed, this proving to be one of Theresa Mays first major moves as PM, she has already been quoted to say “A vote to leave is a vote to leave” suggesting the Brexit will still be going ahead. Since the announcement of the UK leaving the European union we have seemed to be in a period of limbo to what is going on as series of events followed the results such as Prime Minister David Cameron offering his resignation leaving the country with no leader, various Brexit campaigners back tracking on polices that would of been met should we leave whilst some of the major figures like Boris Johnson and Nigel Farage also backing away from the limelight. It has been somewhat difficult to catch on to what is really going on since the 24th of June hence the unstable Pound. Things should now begin to become clearer in the coming months with Theresa May to come up with a deal with the EU to ease our exit from the organisation.

The Second issue is the Potential interest rate cut which was hinted last week by Bank of England governor Mark Carney. At the start of the year Mark Carney suggested that although interest rates where to stay as they were for the year of 2016 although an Interest rate hike was not to be ruled out for 2017 but this seems to have already been scrapped as come Thursday afternoon we could see interest rates reverse due to the uncertainty with the UK’s economic status. In addition the Quantitative easing programme could also be set to change in order to boost the economy due to uncertain months ahead, whilst this could have a positive impact on the economic recovery it will ultimately weaken the Pound further.

With all that being said there is still time to take advantage of this current spike for Sterling before tomorrow’s press release on the interest rate decision and Quantitative easing plans. With the Pound reacting negatively to almost all information regarding the Brexit and Interest rate cuts it may be worth looking securing your currency today due to the positive reaction to the UK’s political situation as this may be one of the last spikes for Sterling for some time to come. As always speak to your Currency Index account manager for information and friendly guidance for your currency requirement.