It’s been 2 months since the UK electorate voted to leave the EU and currency markets have certainly calmed.
In the immediate aftermath of the Brexit vote the Pound lost substantial value against all major currencies, with the currency hitting 3 year lows against a basket of currencies, but the biggest winner to come out of the Brexit vote would seem to be the US Dollar.
The rate of cable (GBP/USD) fell to a 31 year low on the day the vote was announced, that level being 1.2775 and since then we’ve witnessed little in the way of a fightback from Sterling. At current levels the inter-bank level is sitting at 1.3182 so those converting US Dollars back into Sterling are looking at doing so at not far from the 31 year high, and personally I think this range is likely to remain for a number of reasons.
There is talk of the UK going into recession towards the beginning of next year coupled with the chance of another interest rate cut which would likely put pressure on the Pound. Alternatively there are likely to be interest rate hikes stateside as opposed to cuts as the Fed had originally planned to hike rates 4 times throughout 2016. The Greenback has also been benefiting from global uncertainty as investors look for a safe haven for their funds, with the USD regarded highly as a safe haven currency.
It’s for the reasons above that I’m expecting GBP/USD’s current range to remain, with the potential for downside as opposed to upside. However, should risky attitudes return to the markets I do think there will be a sell-off in the US Dollar as much of its gains have stemmed from global investor uncertainty.
Those with a GBP/USD currency requirement should keep an eye out for Existing Home Sales today at 3pm UK time. Also on Friday GDP Estimates will be released both in the UK and US for the 2nd Quarter of this year so those news releases could see movement in either direction depending on their outcomes.