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.
Sterling ends the week once again on the back foot. I’ve written before about the rug being pulled from under the feet of the pound and just as things were starting to look like the love affair would return, on Valentine’s Day no less, the romance stuttered to a lacklustre slump as the week progressed.
Brexit fog and the looming Article 50 being triggered is perhaps the main reason for Sterling’s woes, but the hangover from the referendum vote does seem to be the main pressure point. Even when the market seems to be alive to the pound perhaps improving a little and building on the foundation, something comes up to remind us that we mustn’t get too excited and that the road to EU singledom is fraught with uncertainty, intrigue and potholes.
Key fundamental data post-Brexit has been surprisingly supportive of the UK economy and the main reason why we’re not flirting with near-parity levels that most economists were predicting. Earlier today a surprise retail sales figure was released which pegged sterling back further from the downturn we’d already seen during the middle of the week.
Official figures from the Office for National Statistics showed retail sales volumes dropped by 0.3% compared with the previous month, this figure was well below the 0.9% expected rise. The data showed the first signs of a fall in the underlying trend since December 2013. Quite whether this is a one off or the start of a more worrying trend will remain to be seen. The risk factors are clear though. Most economists and traders alike have been surprised to see the generally good news since the vote, and the domino affect moving forward sending the pound lower is a worrying possibility of course.
Problems within the Eurozone continue to develop of course. We’re seeing the election in France gaining more pace and members from the leading parties are starting on the campaign trail in earnest now. Marine Le Pen, the far-right leaning candidate will grad the headlines with the threat of a ‘Frexit’ being on the cards. Greece too muted the idea that they could ditch the euro and opt for the dollar, if negotiation on another bailout fall short of where they and the rest of the EU would like. These stories will evolve, and I’m imagine the single currency will falter over the weeks to come. More information will of course be reported on when concrete details emerge.
€1.15 or above seems to be the €1.20, last year’s €1.30 if you like. Anyone trading above this level should be fairly satisfied. You’ll always want more, but my goodness it could be a lot worse and the risk if this happening is still greater than a major Sterling recovery In my eyes.
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.