Luke Trevail, a currency exchange specialist at forex brokers TorFX, looks at the factors driving the pound’s exchange rate in the week gone by.
Where do I begin?
A week in this market can confuse, excite and frustrate. Sterling started the week looking at continuing the gains that It started to enjoy before the weekend. We end it looking likely to close a new low. From €1.18 to €1.1450 is quite a move in a short space of time, and just when you were expecting things to improve, annoyingly they get worse.
Ongoing Brexit jitters and dovish inflation predictions by the Bank of England are the main factors that have unsettled the pound. On ‘Super Thursday’, when the BoE announced the latest decision on interest rates and released details of the Quarterly Inflation Report the tone was cautiously optimistic tone, which hurt sterling.
It was expected that inflation would be ahead of the government target, which would mean a hike in interest rates sooner rather than later. The facts are different to the speculation it seems, and although inflation will rise against previous forecasts, it will not be to the extent first thought. Economic growth got a boost, but as inflation isn’t expected to run away as much as predicted, we lost ground from where we’d climbed.
Brexit, of course, is an ever-changing beast, and I’d expect this to influence the market moving forward. Fundamentally the UK economy is doing well, but as we can see, running before we are even crawling is a dangerous business, and not one that we should do without the fear of the rates heading lower.
Protecting your position, as always, is a well advised course of action, we’ve been as low as €1.07 in the recent past so where we are now isn’t too terrible in comparison, particularly when you consider where we might be headed. Next week, Mrs May and her government embark on steering the ship towards Brexit, so an economic iceberg, or plain sailing open waters, might not be far away.
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.