Luke Trevail, a currency exchange specialist at forex brokers TorFX, looks at the factors driving the pound’s exchange rate this week.
Despite the political worlds getting back to work earlier in September, the currency markets still appear to be on their holidays with relatively little in the way of any movement over the last week. The narrow trading range has been between €1.18 and €1.17 since the move down following the ECB’s comments of last week.
When you consider we were above €1.2050 earlier in the month, the move downwards has highlighted the lack of appetite that the pound has and, for me, brings into focus the fragility to the currency over the coming weeks and months.
The Bank of England met yesterday and were reassuringly steady on their predictions for the UK economy in the longer term. “The Committee now expects less of a slowing in the UK GDP growth in the second half of 2016”. This should mean that economic growth expectations for the UK get revised up which would ordinarily strengthen the pound. Any hope of a pound party was dampened however when the sentiment from the minutes of the meeting suggested that a further interest rate cut from 0.25 to 0.1% could be on the cards when they next meet in November. This helps to underline the fact that the pound is still on shaky ground.
The European Union leaders are meeting in Slovakia today and discussing primarily how to regain trust after the UK voted for Brexit. In addition to the economy, Angela Merkel said that they need to improve on security, defence cooperation and staving off the threat of contagion with other countries joining the UK in their decision to leave the bloc. Theresa May will not attend the meeting as officially the Brexit strategy is not on the agenda. With Merkel stating that “solutions for Europe are needed” as “we are in a critical situation”, some form of protection from the rain coming from under the cloud of uncertainty that is Brexit, could go far.
Those of you who need to change pounds into euro should bear in mind that this uncertainty surrounding the UK and its implications for the pound will run and run. Negotiations on when Britain will leave Europe are likely to start only after the German election next October, and the appetite for sterling will almost certainly wane in the meantime.
This article is written by a foreign-currency broker working for TorFX, a forex broker established in 2004 to provide foreign exchange and international payments to both individuals and companies. TorFX is authorised by the Financial Conduct Authority under the Payment Service Regulations 2009 for the provision of payment services. Their FCA number is 517320. To verify their authorisation, you can visit the Financial Services Register and search the register using their FCA number. SPI is not responsible for the opinions of guest contributors.