EDITOR’S NOTE: 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.
The seesaw mood returned to the markets this week. We entered Monday expecting PM Theresa May to announce that Article 50 will be triggered any day. Although the end of the month will be the date, as she’s said since October, the market had thought that when the Brexit Bill was passed in the House of Commons that the formal process of leaving the UK would be actioned..
Despite the Queen giving Royal Assent to the Bill, Theresa May gave the nervous pound some comfort in holding off, for now at least. Rates fell to a low of €1.12 before finding some comfort in a largely slow economic news release week.
We’ve finished just above €1.15 after a Bank of England policymaker surprising investors by breaking ranks and voting to raise interest rates in yesterday’s meeting. The suggestion that others in the nine member committee are close to following suit means that the central bank have given their biggest signal that a rate hike could be seen sooner than first expected. It’s generally the case that the higher the interest rate then the higher the currency.
Kirstin Forbes who is set to leave her role in June put her vote in favour to raising rates, whether this is a parting gesture or something that can gain momentum remains to be seen but with the weakness in sterling dominating the market post-Brexit, the smallest glimmer of light will be welcomed.
The warning on this market for those of you wanting to move funds and commit to a purchase of euros still rings true. Article 50 is happening, the divorce with Europe is happening and this will send the pound tumbling again I suspect. The short-term pain may lead to longer-term gain, but this is not guaranteed of course. You do have the option with brokers like TorFX to trade forward contracts. These deals allow you to lock in the rate now for a completion date in the future. The rate is fixed and not subject to the market volatility, you can look forward knowing that the rates won’t adversely affect your plans.
Whether you wish to ride it out or trade whilst there appears to be an opportunity (three cents higher in the week doesn’t happen often), remember that this market is sensitive to the economic situation that Britain has placed itself and will surely change over the coming weeks.
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.