Luke Trevail, a currency exchange specialist at forex brokers TorFX, looks at the factors driving the pound’s exchange rate this week.
This week has offered up a plethora or European news that could develop into something far bigger in the weeks to come.
Much Like Bob Geldof, Italian Prime Minister Matteo Renzi doesn’t seem to like Monday’s either. In the early hours he announced that he would leave his post after suffering a defeat in the referendum for constitutional reform held on Sunday. Italy now faces political and economic uncertainty. The banking sector in Europe’s third largest economy is already vulnerable and this vote will only add to the instability.
The potential for the anti-establishment vote of 2016 reverberating into wider Europe next year is substantial. The single currency looks set to be the main victim of the fall out. Of course, this will benefit you if you have funds to secure in the coming months after a difficult second half to the year we’ve seen since the Brexit vote.
On Thursday the European Central Bank announced that they would look to taper the quantitative easing package from next April. This is a mixture of good news along with bad. Good that they are reducing the amount but bad that they haven’t decided to stop. The Euro weakened as a result.
All of course will not be plain sailing and we need to remember that nothing on these markets goes in a straight line, least of all the pound. Sterling is an incredibly fickle currency with seemingly anything distracting it from its course. Of course Brexit is one of these things, and quite a large distraction at that.
This week the Supreme Court has met to hear the arguments from both sides regarding the decision from the High Court to allow Parliament to vote on whether Article 50, the triggering of which will start the process in the UK leaving the EU, can go ahead. The government appealed the decision when it was originally given a few weeks ago. The final decision on this isn’t expected until January, but the market is confident that it will be approved and that MPs will finally have their say.
Sterling is buoyed by this, but of course anything can happen and Theresa May has been unusually quiet on a state visit to Bahrain. Nervous of the result. Or confident that ‘Brexit means Brexit’? all will be revealed of course, but it boils down to the market rate for most people who need to react quickly and cover their requirements.
We’ve reached the dizzy heights of €1.20 immediately following Renzi’s departure, but have been as low as €1.16 so volatility is still king. As I write, we’re nearing €1.19 again. Don’t get hurt if we decide to tumble again however, most people would have danced a jig for these rates just 6 short weeks ago.
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.