Warning: Sterling negative report ahead! The government now assumes a no-deal Brexit

2 August, 2019

Grace Rae

This past week has seen the Pound make big movements causing havoc for those looking to sell their Sterling but provided great opportunities for those looking to put Sterling back into their UK accounts.
It all started way back when Theresa May stepped down from her position as Prime Minister and the leadership contest began. With the favourite to win Boris Johnson being very frank about his opinion on leaving the EU without a deal starting off the pound’s further decline. Then on Sunday the 28th of July Michael Gove, although claiming that the government were still aiming to find a agreement with the EU also critically mentioned that a “no deal is now a very real prospect”, and with no surprise the Pound took another hit lower as investors pulled their funds away from Sterling seeing as the European Union had stated many a time that the current deal is the only deal on offer. Monday then came around and we woke to see the Pound drop almost 2 cents against the Euro and over a cent against the Dollar. The dip continued through to Tuesday as the new Prime Minister made remarks suggesting it was now “up to the EU, this is their call” if the UK leaves the EU without a deal causing the rate to fall to levels not seen since 2017 and breaking through its critical support levels.

Sterling has since found a little bit of recovering from the initial drop, but for how long will they hold? Perhaps only until we get any further Brexit news. For those with upcoming transfers to make the question you now have to ask yourself is, what is the likelihood of the Pound improving in the timeframe I have? Your best case now is to hope that an alternative solution can be found by October 31st and recoveries begin. But that is a big risk to bet on. Another outcome is that a General election is called in an attempt to avoid a no deal and this option is also Sterling damaging as it opens to door to further government uncertainty and reduces the chances of any resolution before October 31st. So caution readers, if we leave with no deal rates are highly likely to fall even further potentially hitting parity or worse.

The Bank of England also confirmed yesterday that have opted to keep interest rates unchanged while downgrading their growth forecasts. Although the bank chose not up follow other central banks decision to raise interest rates on this occasion, they did say that they continue to expect interest rate rises in the future, but these would remain dependant on an orderly EU exit. The news hadn’t pushed the Pound further in any direction so holding onto its current position for now.

As we are now in a fresh month, there is more economic data released, with UK Markit Construction PMI at 09:30, followed by Eurozone Retail Sales figures at 10:00 and this afternoon the US post Average Hourly Earnings, Unemployment Rate, Trade Balance and Non Farm Payrolls at 13:30.

With an pretty grim outlook ahead at least between now and October, and the months beyond, those with a requirement particularly in the short term may want to get in touch with our friendly currency consultants to consider what options you have to help you minimise your expose to the market. Let our consultants keep you well informed of any movements and ask about our Limit/Stop Loss and Forward buying options. Don’t get caught out by leaving your transfers to the last minute. The earlier you get in touch the better chance you have to saving some money in a potentially dropping market.