Tip of the Iceberg

29 May, 2019

Tom Arnold

Up until a couple of weeks ago Sterling had been enjoying a period of relative calm with very little news of serious note and no great surprises on the ecostat front. All of that changed quite suddenly when Brexit jumped back to the fore, with the announcement of Prime Minister Theresa May’s “bold new deal”, which started a roller coaster of events which leads us to today, with a Prime Minister having announced her resignation, a Tory party so divided that so far eleven candidates have thrown their hats into the ring to be the next leader, an absolute trouncing of the main political parties in the European Elections, the latest rise of Nigel Farage with his Brexit party, a Labour party openly talking about switching to a Remain/People’s Vote policy and finally with the Pound down almost five cents against the Euro and the US Dollar.

You might be forgiven for thinking that the world has ended on the currency markets if you have an upcoming currency purchase and Sterling in hand, but unfortunately this is likely only the beginning. The problem is uncertainty. The currency markets are largely driven by massive investors shifting multi-billion unit investments between currencies, searching for safety and yield/returns. In uncertain times those investors move away from risk, in this instance the Pound, and so weakness follows. Over the coming few months we are going to see a Tory leadership election, uncertainty, then likely a resumption of negotiations with the EU, more uncertainty, then what to do about the October 31st deadline, even more uncertainty, and then a very real possibility of either another EU referendum or a general election, the most uncertainty. So as hard to take as the recent losses for Sterling may be, they really are probably only the tip of the iceberg.

Analysts predict that in the event of a “No Deal” Brexit, the Pound will probably reach parity with the US Dollar, yes, the US Dollar, not just the Euro. So, if the Dollar which is worth less the Euro is going to get there, then we can expect rates against the single currency to be even lower than parity. So, if you do foresee a currency requirement in the coming months and your starting point is Sterling, now is very likely the right time to be making your move before things get any worse.

In other news US/China trade tensions are running as high as ever, with China considering next steps following recently increased US tariffs. Apparently, the restriction of rare earth minerals might become the latest weapon, with China producing and exporting 17 of the rarest minerals required in many critical US industries. The US Dollar seems to be holding its own despite these tensions, but be wary if you are holding Dollars, as decisive action from China could cause a drop off.

There is not much in the way of critical ecostats out this week from any of the major economic zones, so we can expect the major political/news pieces to continue to be the main drivers of the currency markets, with all of the above even more to the fore. Make sure to stay in close contact with your Currency Consultant to find out what your best options are and how you can protect yourself from the ever-volatile markets.