Exchange Rate Forecast

Exchange rate forecasts and foreign currency news

Uncertain end to the month for Sterling exchange rates

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The most recent update from the Brexit talks was focused on the Irish border issue and as yet it appears to be unresolved. This is a key point to take things forward and this has caused the Pound to drop slightly from its recent best rate to buy Euros since May 2017. Brexit Secretary David Davis has been much more positive in recent times and has suggested that talks are looking much better between the European Union and the UK.

The Pound rose up to 1.15 against the Euro after the Bank of England voted 7-2 in favour of keeping interest rates on hold, but it appears as though there is clearly a growing appetite for an interest rate hike coming in the UK. Indeed, the chances are approximately 75% in favour of a rate hike when the Bank of England meet in May and as the UK economy has been performing very well, as proved by wage growth, which outpaced inflation this month I think the central bank are well within their rights for a small interest rate hike.

However, there appears to be a big problem on the high street and although Retail Sales have remained very strong the issue is that some high street stores have been closing recently such as New Look and Toys R Us. More recently Select fashion has come under a lot of pressure with potentially 2,000 jobs at risk.

We end the week with UK GDP figures for the final quarter of 2017 on Friday morning. The expectation is for 1.5% for the final quarter so any change could cause a lot of volatility for Sterling exchange rates at the end of this week. Also, Thursday is the final day of the month and the first quarter so we could see some end of month flows which can often have a big effect on the Pound’s value against a number of different currencies.

European Commission Roadmap

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The Eurozone has been showing good growth of late and there is a plan from President Jean-Claude Juncker to bring the continent even closer together. Whilst the European Commission’s report didn’t reveal anything to exciting it has laid out high level plans for the route the EC will take in order to grow the economy.

Gross Domestic Product Data Tomorrow

At 10:00am this morning the latest GDP data was released for the Eurozone. Both the Quarter on Quarter data and the Year on Year were expected to stay the same as the previous reading, however the Year on Year figure did see a slight rise of 0.1% to 2.6%. The European economy has been improving over the last 6 months showing good signs of growth, so this was not a huge surprise, but is still a positive for the Eurozone, although it had little impact on the EUR/GBP exchange rate, which is focussed on Brexit news currently.

EU Leader Tusk Optimistic for Deal

European Union Chief Donald Tusk has said that he has been encouraged by progress in the divorce talks and that he was optimistic the two sides are getting closer to trade talks. The talks have now become more of a domestic concern with the UK Government negotiating with Ireland over how the border will be implemented. The European Council will be given the chance to vote on the Brexit divorce bill on the 14th and 15th December at the EU Summit. Should the 27 nations be in agreement then talks could move onto trade talks which could create even more market volatility.

At the end of last week the Euro lost ground against Sterling as the GBP/EUR rate lifted up following news a Brexit agreement might be close. If there was to be an announcement that a deal had been agreed then I would expect to see the GBP/EUR rate jump up towards the 1.15 level.

UK and EU fail to reach an agreement

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Pound drops off from highs

So far the United Kingdom has failed to reach an agreement with the European Union in order to move onto the next stage of Brexit talks, according to UK Prime Minister Theresa May. The announcement was made at a press conference this afternoon where she was joined by European Commission President Jean Claude Juncker. The announcement comes only 10 days before the EU summit (on the 14th-15th of December) and the deadline set by the European Union. The talks would then be pushed back until March and further weakness and negativity for the Pound would most likely ensue.

According to reports, the Democratic Unionist Party (DUP) were the reason behind why talks weren’t successful. This leads people to believe that the UK are willing to fulfil the Irish Government’s wish; however, the DUP quickly stuck their heels in, reacting angrily to reports of concessions on the Irish border. The Democratic Unionist Party’s support is vital to the success of the UK passing any Brexit legislation. Reports have emerged that Northern Ireland would all but in name, remain part of the European Union. This has led to other leaders – Scottish First Minister Nicola Sturgeon, Welsh First Minister Carywn Jones and London Mayor Sadiq Kahn all calling for similar treatment.

Brexit talks are expected to continue to dominate

Whilst this had initially caused the Pound to shed its gains, reports that a Brexit deal will still be agreed upon are keeping the Pound afloat. Positivity from both parties involved have helped keep investors hopes alive that a deal would be made in the up and coming days. I would expect the talks to dominate the headlines for the remainder of the week, with extreme volatility expected on any Sterling trades on any announcements, positive or negative.

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