Sterling has found some welcomed support against the EUR over recent days, as concerns over the Italian political crisis intensified over the weekend.
GBP/EUR rates hit a high of 1.1467 this morning following a complete breakdown in negotiations over the weekend, between the anti-establishment Five Star Movement and the far-right League. The two leading parties have failed to form a working government, with the on-going political turbulence weighing heavily on investors, who have since shied away from the single currency.
This in turn has inadvertently boosted Sterling’s value, somewhat artificially some may say, despite the current issues facing the UK economy and the current malaise in Brexit negotiations.
UK Prime Minister Theresa May is struggling to pull her Conservative party in the same direction, with key members of her backroom team, openly questioning her Brexit strategy.
Investors’ long-term confidence in the UK economy and ultimately the Pound is being tested and as a result the Pound is struggling to gain any sustainable value. This is due for the most part, to the on-going uncertainty around Brexit, which continues to cast a dark shadow over the UK economy.
In my opinion until negotiations have been resolved, one way or another, it is unlikely that investor confidence will grow significantly, which is likely to handicap the Pound over the coming months.
Looking at the current data and Friday’s Gross Domestic Product figures confirmed that the UK economy had grown at its slowest pace in the past five years. This follows a run of inconsistent data, with inflation falling again this month, another indication that we are unlikely to see the Bank of England (BoE) raise interest rates anytime soon.
Due to this on-going uncertainty, I would be very tempted to protect any Sterling currency positions from further losses and remove any market risk where possible.
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