Sterling spikes ahead of EU summit

23 November, 2018

Rob Bastin

Yesterday was another day dominated by Brexit headlines, rumours and market speculation that continues the volatile times that we have been experiencing over the last week or so. After trading near its lowest levels of the last couple months in recent days, Sterling received a welcome boost on the news that Theresa May has now reached a draft agreement with the EU on details of their future relationship after Brexit. The draft 26 page statement sets out the structure for the future relationship but this will not be fully negotiated until after March 2019, which still leaves many unanswered question and details for voting MPs.

This Sunday Theresa May will attend the EU summit with the hope that all 27 members of the EU will sign off and agree to the current Brexit agreement which would then enable her to take the deal to parliament for a meaningful vote in early December. Based on recent comments from the EU it is very much expected that the deal with be signed off this weekend, but she faces very real difficulties in getting the required votes from fellow MPs in December which could see us facing a leadership challenge and a potential election before end of the year. The risks to Sterling exchange rates during this time is also very real, with nearly all outcomes other than an agreed deal likely to see the pound drop in value, and currently the chances of this deal being agreed are looking very slim.

Analysts across many major banks are warning that any upside for Sterling currently is extremely limited, making spikes like yesterday just the sort of opportunity to jump on should you have an up and coming currency requirement. Analysts warn that the prospect of a ‘no deal’ and potential 15% fall in GBP is still very real, and that as many as 100 MPs could vote down the Brexit deal in the coming weeks, assuming that it gets that far.

It is in risky markets like these that tool like our Forward contracts become extremely popular as this can help you manage any downside risk but safeguarding your future exchange rate ate the current levels. If you have a larger requirement in the coming weeks or months and do not have the budget to take the increasing gamble, contact your broker today so ask about forward prices for your personal timeframes.