Sterling has found some support this week against both the Euro and the US Dollar. However, it is yet to make any significant impact against either currency and this trend is likely to continue over the coming weeks in my opinion.
GBP/EUR rates are trading above 1.12, whilst GBP/USD rates are now back above 1.33. Any move towards 1.15 and 1.35 respectively will likely require a major breakthrough in Brexit negotiations and/or a downturn in either the Eurozone or US economy. With both of these economies looking far stronger than the UK’s at present, the second of these scenarios looks even more unlikely than the first.
Brexit “Divorce Bill” agreement
There are reports surfacing that Theresa May is willing to increase the amount of money the UK will pay the EU for the “divorce settlement”, which could help move the negotiation process forward. Any breakthrough in talks will likely help to support the Pound around its current levels and boost investor confidence in their longer-term economic projections for the UK.
Event that is unlikely to provide the Pound with an aggressive increase in value. Sentiment surround Brexit is likely to drive the markets for months if not years to come and as such I would be looking to take advantage of any market spikes that do occur.
Much of this week’s focus was on Wednesday’s UK Autumn budget, delivered by Chancellor of the Exchequer Phillip Hammond. As I anticipated the result was almost a non-event for the currency markets and in truth the Budget very rarely has a major impact on exchange rates.
Wednesday’s “safe” budget was always unlikely to throw up any major surprises. UK Prime Minister Theresa May and Philip Hammond were already under severe pressure, both inside their own Conservative party and externally as well. The former is trying desperately to rally the country in the wake the on-going stagnant Brexit negotiations, whilst the latter was under the spotlight following the disastrous Budget he delivered in March.
The key points delivered by Hammond, included the abolition of Stamp Duty on all properties valued under £300,000 for first time buyers, higher road tax for diesel cars and an additional £2.8bn for the NHS.
However, despite these claims economic growth forecasts for the UK were cut, which has been directly attributed to the on-going fall out from Brexit. Fears over the UK’s economic standing following our eventual separation from the EU continue to drive market sentiment. With investor confidence minimal the Pound is struggling to make any significant inroads against the other major currencies.