Luke Trevail, a currency exchange specialist at forex brokers TorFX, looks at the factors driving the pound’s exchange rate this week.
Much like a paper bag in the breeze, sterling has had little in the way of direction this week.
The pound has softened from the highs that we saw last week of around €1.2050 to as low as €1.1760 earlier today.
Bank of England Chief Mark Carney spoke on Wednesday and stated that he is ‘absolutely serene’ about the Bank’s forecast about the impact of Brexit to the wider economy. Signs of stabilisation, in the economy were welcomed in light of a glut of positive data, but he went on to insist that there has been a clear impact stopping short of whether it was a positive thing or negative.
When the discussion on whether further cuts in interest rates were likely to be seen, no commitment could be drawn. The wind does seem to be blowing towards another move to 0.1% in the November monetary policy meeting and Carney did indicate to the Treasury Select Committee that a move down on interest rates could be seen ‘if necessary’.
The shockwaves of Britain’s decision to leave the EU are still being felt in both the UK and Europe and the uncertain economic picture will still create volatility for the foreseeable future and doesn’t look likely to slow now that Parliament are back after their Summer recess. Brexit negotiators have been appointed on both sides, with former Belgian prime minister Guy Verhofstadt being named as the main man for the European parliament.
Quite when the negotiations will start in earnest, let alone agreements made, and moreover the implementation of such agreements remain to be seen and I’d imagine it will be more likely to happen at the turn of 2017. This would leave the markets very sensitive to any small pieces of data being potentially significant and caution should be advised for anyone looking to secure a rate on the euro. The truth is, in a little over 2 months the pound has moved down by over 10% and could have the scope to move lower.
Peaks a troughs define a market, and the peaks will likely be few and far between so don’t expect amazing rates of exchange, the range that we’re seeing between €1.14 and €1.20 can make a huge difference. Taking advantage of any opportunities that arise is a good idea.
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.