GBP Exchange Rates Slide Lower on Brexit Uncertainty (James Lovick)

Sterling lower as Boris Johnson Quits!

The pound is on a weaker footing at present following a number of speeches including from UK Prime Minister Theresa May last Friday setting out the terms for Brexit and how Britain envisages the future relationship.

The issue for sterling right now is how the financial services sector will be impacted over Brexit and whether or not it can be included in any future trade deal. The French finance minister for one has made clear he does not feel that services can be included in such a deal. On the other side Chancellor Philip Hammond has made clear that there will not be a deal at all if services are not included.

The Chancellor is right to say this considering that UK financial services represents close to a staggering 80% of the British economy. Not only that but Britain has a £20 billion surplus with the EU. Assuming services can be included in the final deal then the pound in my view should see material gains. The problem for clients holding pounds at the moment is that in the short term the pound is likely to remain in this lower cycle whilst we wait for new developments. This could be for a period of months rather than weeks and the pound may weaken further on the back of tough talk from the EU. Clients looking to buy Euros or dollars would be wise to try and take advantage of any spikes that happen in the next few weeks as the road to Brexit will be a long one.

Those clients with a Euro requirement are seeing added volatility after the European Central Bank signalled today that it will not look to extend the taper of its asset purchasing scheme. The decision saw immediate gains for the Euro with rates for GBP EUR falling below 1.12 and paves the way forward for an eventual rate hike in the EU.

Will the Pound Strengthen?

As the Brexit negotiations move on to the critical future trade arrangement the pound in my view is likely to strengthen once those discussion are well underway. The third round of negotiations are expected to commence at the end of March and at some point the pound in my is likely to strengthen. There could be some good opportunities in the short term however for both selling Euros and selling dollars.

For more information on the where the pound is heading and how to try and make the most of any spikes to help with your own currency requirement then please feel free to email me at jll@currencies.co.uk