An opportunity of a lifetime has presented itself in the fallout of Brexit, as the UK prepares for more uncertainty ahead, investment continues to pile into the safe-haven US Dollar. The last time USD GBP exchange rates were this attractive, Margaret Thatcher was Prime Minister and Ronald Reagan was President of the United States.
Opportunities like this don’t linger for long, especially under these very unusual circumstances. In the last week cable exchange rates have fluctuated as much as 7 cents, this morning alone, Pound Sterling has already clawed back almost 2 cents.
The market continues to react to the political turmoil and Mark Carney’s post-Brexit economic warning, but these are just small cogs in a potentially much larger wheel.
But what is happening in the markets is purely a reaction to Brexit, and I’d like to point out that the markets were piling into the Pound hours before the Brexit outcome, the markets got it very wrong.
And if we start to look at the bigger picture, the US economic outlook has its own set of challenges to overcome. The Non-farm payroll figures in May dropped drastically from 123,000 to 38,000, lows not seen since 2010. Then, we have the Interest rate hikes that look less and less likely to happen as we approach the second half of the year. Yellen’s meeting with congress last month should raise some alarm bells given her concerns over growth and lower than anticipated inflation.
And only just this morning, Deutsche Bank published a report indicating a 60% chance of a recession for the US based on yield curves, noting that some are at their flattest since 2007.
There is no question that uncertainty will be the norm this year, so making a transfer sooner could protect you from further losses.
Pound or Euro, which way will the rates go?
It appears as though the Pound has taken the hit post-Brexit but as the dust begins to settle, more storms appear to be brewing in the distance. The news is littered with political turmoil, not just for UK government but EU officials have voiced their conflicts.
Do the EU take the soft or hard approach to Brexit, how will the other EU bloc members react? More importantly, what impact financially will a Brexit have on the EU – the third largest net contributor?
There is of course the concern that other EU members will jump ships, is Brexit just the domino effect? Does the EU need to shift its focus away from further integration and return to what is was intended for, a trade bloc?
There’s no doubt that the months ahead fill many with uncertainty, and the markets will react accordingly to future updates. With a market this reactive, making a currency exchange now could work in your favour.
Will the Pound strengthen or weaken? This all depends on what deal the two can exchange, and until article 50 is invoked, we just don’t know what will happen.
