Sterling dropped to the lowest point since October 2009 this week, with the prospect of it improving looking unlikely. Many currency buyers should clamber to protect themselves in these unprecedented times of uncertainty and fear.
The latest wave of Brexit negotiations have taken place, and it appears that both sides are becoming frustrated by one another’s reluctance to back down. Good negotiating some would argue, but whilst they continue to butt heads the market is nervous leaving the pound vulnerable due to the lack of direction or comfort that mediocre progress is bringing.
Fundamental news was light this week, but the suits in Westminster are back next week and the jostling for public approval from both the Conservatives and Labour parties will continue again. Remember, before the summer recess talk of a second General Election was taken seriously, and Jeremy Corbyn is ahead in the opinion polls.
Since then, Theresa May has thrown her hat in the ring for another fight to remain as PM for a second term, and is prepared to battle for her position at number 10 after seeing out her entire first term. The daggers were out in the Conservative Party just a few weeks ago, so if she can change public opinion not to mention that of her own team, then she really would show her resilient and ruthless side. How economically positive this would be I don’t know, but stability at the top end of British politics is needed to calm market jitters.
As we all know, predicting the market is an impossible task. The pound’s exchange rate is moving down, and it’s very difficult to see how the pound will drastically change whilst the fallout from Brexit fails to take a definitive turn. This doesn’t necessarily have to be for the better, but the market just likes certainty and not surprises.
Protect your interests, and don’t expect miracles if you need to sell pounds. A lot can change in a few days, of course, and in fairness the pound has finished the week higher than it started, but I fear worse is to come for Sterling.
Article by Luke Trevail, senior currency trader at torfx.