UK economy update and Brexit negotiations to drive sterling

Now that the Christmas and New Year festivities are over, business is back to normal around the globe. Over the last two weeks, market movement has been fairly muted apart from a weakening US dollar. Investors have been leaving the Greenback and once again enter commodity currencies. GBPUSD increased by 2 cents over the last 2 weeks, however the pound lost momentum against the commodity currencies.

If you are a first time reader or read this website regularly, we provide our clients regular economic information which helps that individual to form an opinion of when to buy a certain currency. Furthermore the currency company I work for undercuts banks exchange rates, which in turn saves the client money when making a currency transfer.

Unfortunately we do not deal with cash, so if you are reading this website in order to decide if now is a good time to buy your euros for your summer holiday, I won’t be able to help. However if you are buying or selling a property across the globe, import goods from abroad or just have a one off transfer, I will be able to save you money.

It seems that every time I turn the news on ‘Brexit negotiations’ are continuing to steal the headlines and I expect this trend to continue throughout 2018, creating a lot of volatility and therefore driving sterling exchange rates.

Since the Brexit vote in 2016, the pound plummeted in value (approximately 15% against the G10 currencies) which has provided a fantastic opportunity for clients that are selling a foreign currency and buying the pound. However in regards to the economy, many key figures such as ex Chancellor George Osbourne and Prime Minister David Cameron and forecasting companies got their forecasts slightly wrong in regards to how the UK economy would perform after Brexit.

For example the World Bank, International Monetary Fund and Confederation of British Industry all predicted that UK growth numbers would plummet in 2017 between 1.2% and 1.5%, however UK growth numbers remained buoyant at 1.8% for 2017. Another example is the UK property market. Many leading forecasters suggested that property prices across the whole of the UK would fall, but in fact the average property within the UK has increased, although the rise has slowed to 4.5% in 2017 compared to 8.2% before the Brexit vote.

As for businesses within the UK, those that export goods abroad have been receiving additional orders due to the pound being so cheap, although businesses that import are the ones that have been stung since the Brexit vote. These are the businesses that I help on a weekly/monthly basis to achieve improved exchange rates which makes the product they are buying cheaper.

At present the worry that the UK has is inflation outpacing wage growth numbers. Inflation is now over 3% and 1% above the Bank of England’s 2% target. However wage growth numbers are dwindling along around 2%, putting pressure on the people within the UK. An option for the Bank of England is to raise interest rates which occurred a few months ago, however if interest rates rise to 0.75% this also puts pressure on the people within the UK as mortgage repayments are more expensive. A dilemma for the Bank of England.

Looking ahead I expect the UK economy to continue to tick over throughout quarter one / two and it will be the trade negations that dictate sterling exchange rates. Personally I expect the negotiations will continue to put pressure on the pound however long term developments will indicate that a trade deal will be secured which will help the pounds value. Unfortunately for clients buying a foreign currency short term, I don’t expect major improvements until the end of 2018 or even 2019.

Therefore if I were buying or selling the pound I expect to see fluctuations off the back of news from Brexit and economic data that is released on a daily basis. Furthermore it is essential to analyse the other currency that you will be trading. For example the pound is on the charge against the US dollar at the moment due to further problems for Donald Trump but the pound is losing momentum against the Australian dollar due to a change of stance from the Reserve Bank of Australia.

My point is that if I were buying US dollars I would continue to hold for a period where as if I were buying Australian dollars I would purchase sooner rather than later. Therefore I have a different approach for different currency pairs.

If you would like to save as much money as possible feel free to email me with the currency pair you are looking to trade and the time-scales you are working too and I will email you with my forecast for that currency pair and the process of using our company drl@currencies.co.uk.

The events to look out for this week is UK Prime Minister Theresa May cabinet reshuffle Monday and industrial/manufacturing numbers released Wednesday morning.

Enjoy the rest of your weekend.