Sterling has found some much needed support over the early part of the trading week, recovering ground against both the EUR & USD. The Pound has benefited from some improved economic data late last week, with Unemployment data and UK Retail Sales figures coming in better than expected.
This in turn boosted GBP/EUR rates, with the pair hitting 1.1784 at the high and bringing some much needed respite to those clients holding the Pound, following weeks of devaluation. These losses were born out of a complete lack of confidence in the UK economy, with investors risk appetite dissipated by the uncertainty caused by the UK’s decision to exit the EU. This is and will remain to be the underlying reason behind Sterling recent demise, with the Bank of England (BoE) cementing the downfall with their recent interest rate cut. With the possibility of further monetary easing (QE) and/or another rate cut, we may see the situation get worse before it gets better.
GBP/USD rates have seen a similar trend, with the pair falling below 1.30 at the recent low. Despite an improvement above this threshold, I do anticipate a sustained recovery anytime soon, certainly not under current market conditions. The greenback has made huge strides since the turn of the year, in line with economic improvements in the US and despite the political battle between Donald Trump & Hilary Clinton heating up ahead of Novembers election, I do not expect a recovery back towards 1.40 until we at least have some clarity on when and how the British government are likely to facilitate our Brexit.
Once some of this uncertainty has been removed then the Pound has a better chance of recovering its losses but until then I would be looking to protect any short to medium-term Sterling positions, with further market volatility expected.
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