Luke Trevail, a currency exchange specialist at forex brokers TorFX, looks at the factors driving the pound’s exchange rate this week.
The pound continues to remain buoyant as the dark cloud of Brexit edges towards the horizon.
On Thursday we had UK Manufacturing PMI data released which has bounced back spectacularly after a horror show in July immediately after the referendum. Friday saw a similar report this time gauging how construction is fairing in the months following the vote, which was again positive.
Markets had been braced for a decline in the pound, as David Cameron and the rest were very downbeat on the future prospects of this country if we exited the EU. Proof however is often in the pudding. No one can rewind the clock and Theresa May has confirmed that a second referendum is not on the agenda. As such when the results bucked the trend it has allowed analysts to look ahead perhaps at a better Britain outside the single market.
After an upward swing following last week’s retail sales and unemployment data Sterling peaked at €1.1920 before settling around €1.1870 at the time of writing.
The weak pound has been suggested as the reason why manufacturing figures have improved, as it makes it goods from the UK cheaper abroad. The 13% drop in the pound following the 23rd of June’s vote has no doubt helped, and although the result of this survey has boosted the pound, it’s still leaves it 10% cheaper for foreign markets buying goods from the UK.
On the other hand, the weak pound makes imports more expensive, and we currently import far more than we export – remember we are an island after all. These extra costs of food and fuel are yet to hit the consumer, but will be coming soon. Often this is cause for concern, but Britain is a nation of spenders, and with interest rates being at an all time low, and the Bank of England suggesting they could head lower, there is little in the way to put people off hitting the high street and putting their money into the economy, which will help things develop and should give sterling some continued support.
September will bring the return to office of all senior politicians in the Brexit game. Theresa May is attending her first G20 summit this weekend in China, and the Brexit negotiations will no doubt start in earnest thereafter. More on this and how it affects the market will come in time.
For now, those of you that need to take advantage of the market are well placed to do so. We’re close enough to €1.20 for the rate to become attractive. As we know, British weather can turn quickly, and that dark cloud can quickly come back from the horizon and ruin your day.
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.
