Sterling corrects on profit taking

30 June, 2016

Rob Bastin

During yesterday’s trading both UK stocks and the pound were able to continue some recoveries following the drastic drop last week. Sterling gained around 1% across the board but is still only making a very small dent in the 10% depreciation following the Brexit result. The markets are likely to see some short term stability at these lower levels as the next big wave will likely have to await further clarification around the UK’s political situation, and more importantly confirmation of enforcing article 50 which is yet to take place. Whilst traders cash out their profits this natural correction could provide a good opportunity for anyone selling Sterling, to do as slightly better levels that could be seen again for a long time should parliament confirm our exit from the EU in the months to come. Any gains made in the coming weeks should not be confused with positive sentiment as it is very unlikely that the worst is already behind us.

Amongst all the economic and political concern, data is still being announced in the background although it is having very little effect on exchange rates in the current market conditions. Yesterday morning the UK saw positive figures for mortgage approvals and Net Lending, and the Euro-zone posted various sentiment indicators that all more or less met expectations.

The day ahead will see some important GDP growth figures for the U at 9:30am, followed by Euro-zone inflation at 10:00am. It will be too early to see the impact of Brexit on GDP but any growth has already been slowing in the lead up to the referendum and so a weak result could add further concern to the markets. In contrast Euro-zone inflation has been improving and is forecast again to push up by another 0.1%.

For guidance through these uncertain markets, make sure you are in close contact with your broker to discuss the various options and tools available to help you maximise your exchange rate. Limit orders are proving very popular to help clients capture any potential brief spikes that may present themselves during this correction.