Currency Forecasts
Theresa May to address the commons this afternoon. GBP/EUR forecast
Following last weeks key Brexit vote in which Prime Minister Theresa May took a heavy loss but subsequently was able to win her vote of ‘no confidence’ we begin the week with another round of key Brexit negotiations that will influence the short term direction of the pound.
Mrs May is due to address the Commons this afternoon, setting out how she intends to proceed with the Brexit withdrawal agreement. One of the major sticking points is the hard border between the Republic of Ireland and Northern Ireland. This backstop has caused a significant sticking point and has been one of main reasons her Brexit bill was rejected. Mrs May has insisted she will continue to focus on cross-party talks to get the deal accepted by Parliament however it is understood she will now focus on approval from her own party, as she continues to get little support from the opposition parties.
Where now for the pound?
If she can make a breaktough regarding the backstop and the EU are happy to renegotiate, a stance they had previously said they would not be interested in, then the pound could see some traction as we are a step closer to agreeing a deal. My feeling is she will continue to struggle and inevitably I think we will seek an extension of Article 50. I cannot see any agreement going through in time for the 29th March and I feel we may see a 3-6 month delay.
In my opinion the pound will continue to trade within the 1.12-13 range and I cannot see any significant movement until further progress is made. It is unlikely that we will see a ‘no deal’ Brexit and that will keep the pound from tumbling and I am confident that if a deal can be arranged then the pound will have a better year than 2018. I personally think the pound is undervalued, particularly against the Euro and US dollar. Both the US and some of the key European economies, Germany for example, have been posting some weak data of late but I wouldn’t expect and significant moves for the pound until clarity regarding Brexit can be found. A big if…..
Protect yourself against adverse exchange rate movements
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Pound/Euro at 2 month high
The Pound/Euro rate is at a 2 month high today, following the government succeeding in winning the vote of no confidence last night, as was widely expected to happen. Sterling has been getting stronger and stronger over the last week, on signs that the UK is unlikely to crash out of the EU without some sort of deal. In the last week alone, GBP/EUR has risen from €1.10 to €1.13, which is the highest we’ve seen in 2 months.
It’s strange, as usually markets hate uncertainty. This week the withdrawal agreement was rejected, with the UK and EU both saying no concessions will be made, and with no clear idea what will happen next. Despite this, the Pound has gone up. Our view is that despite the current political situation, markets do not expect no deal to happen despite that being the default position at the moment. That’s why Sterling has gained. A softer Brexit or delay in the process is now perceived as the most likely outcome.
In the last half an hour the UK has said it won’t extend article 50 and that we would be leaving the EU on March 29th. The Pound went up as markets have completely ignored this comments and simply don’t believe them. Everyone thinks that an extension to article 50 is now the only option. Personally I think that with a clear signal that the EU’s proposed withdrawal agreement will not be accepted, the EU now need to make some concessions with regards to the Irish backstop.
What next for Pound/Euro rates?
I think that given GBP/EUR has risen by 3 cents in a week, it’s likely this recent run of strength will run out of steam and the pair won’t rise much above €1.13. Unless we get an official announcement that Article 50 will be extended. Those that need to convert Pounds to Euros may wish to take advantage of the current levels while they are at a 2 month high. Purchasing €300,000.00 today is £7250.00 cheaper than this time last week, showing how much of a difference it cam make when converting a large sum.
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Therese May set for a vote of no confidence
As expected Prime Minister Theresa May lost her Brexit vote in the commons last night, the heaviest loss for UK Prime Minister in nearly 100 years. As a result of the loss the leader of the opposition, Jeremy Corbyn has called for a vote of no confidence, this is scheduled for 7:00 pm tonight. Should the PM lose she will have to resign.
Following yesterday’s result he pound has actually found some support, something that my colleague Alastair predicted in his post yesterday.
What now for the pound?
For me it is highly likely that she will pass the vote of no confidence. The Democratic Unionist Party (DUP) have already come out in support of her along with a number of her conservative counterparts. For me I believe she will win and this will put to bed the chance of a general election and a ‘no deal’ Brexit, I also believe this outcome will lend further support to the pound.
Of course the next steps following the no confidence are unsure wioth the EU already saying they are not willing to negotiate further. This, again, is just them playing hard ball and I believe concessions will be made. My view is that an extension of Article 50 is most likely, with most analysts expecting a delay of 3-6 months to allow a new Brexit deal to be negotiated – we will then have the pleasure of discussing Brexit for the months to come………….
Brexit vote due today
Today we will finally see MP’s have their ‘meaningful’ Brexit vote in parliament, but will it actually mean anything? I won’t go in to too much detail this morning as all news outlets are giving decent coverage on what is happening. Instead I’ll take a quick look at how it could affect Sterling exchange rates.
Pound could strengthen, whatever the result of the vote
It’s likely that the withdrawal agreement will be voted down, and this is what the markets expect. If it does get through, this would probably strengthen the Pound significantly as it moves the UK towards a softer Brexit.
If it is voted down, the as it is what the markets are expecting anyway, it wouldn’t necessarily weaken the Pound. Instead, if it means that the Brexit process would be delayed, then this could also help the Pound as it gives time for either further negotiations to get a better deal, or time for the possibility of a new referendum. These options would also help the Pound.
What could cause the Pound to fall?
There are however 2 outcomes that could weaken the Pound. The first is if a vote of no confidence in the government succeeds. This is unlikely, but it could happen and that would lead to a general election, and further uncertainty. The markets would not like a Labour government and the chances of this would weaken the Pound significantly.
The other thing that could harm Sterling is if May steps down after losing the vote. This could lead to a Brexiteer taking over, increasing chances of a harder Brexit. Again this would move things back to square one and increase uncertainty, pushing the Pond lower.
Ultimately, I think the first set of options is most likely. Assuming the deal is voted down, and the government wins a confidence vote, the most likely outcome is a delay in the whole process, and therefore a further strengthening of the Pound.
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Calm before the storm? Pound/Euro exchange rates
Pound/Euro exchange rates are trading steadily this morning ahead of the key Brexit vote in parliament tomorrow. There are a number of potential outcomes from this, as explored by my colleague Alastair in detail last week, and for this reason it is almost impossible to predict the next direction for the pound. One thing that is almost certain is there will be plenty of market volatility.
Most people expect Prime Minister Theresa May’s Brexit deal to be voted down and it will therefore be the outcome following this that will determine the next move for the pound. I firmly believe a situation of ‘no deal’ Brexit will be avoided at all cost and an alternative path will be found. Sterling exchange rates rallied on Friday afternoon on rumours the Article 50 deadline of the 29th March will be extended by 6 months.
Where now for Pound/Euro exchange rates?
Once again the path of Brexit is extremely unclear, there was even an article in the Sunday Times over the weekend suggesting a potential coup should Theresa May lose the vote and allowing MP’s to put Brexit on hold, potentially leaving the way for a second referendum.
For me, the fact that the pound/euro exchange rate hasn’t already significantly crashed, suggests there is something bubbling away in the back ground to prevent a ‘no deal’ occurring. I believe the most likely solution, will be an extension of the Article 50 deadline, and it would seem the EU are already expecting this. Should this occur, then I think some support will be seen for the pound and we could see sterling rally later this week.
Protect yourself against adverse exchange rate movements
For those that need to convert currency and make an international transfer, there are steps you can take to avoid the uncertainty in the currency markets. We offer various tools to help protect against adverse rate movements such as Forward Contracts, Stop Loss Orders, Limit Orders and Rate alerts. We also offer exceptional rates of exchange that are up to 5% better than your bank or existing broker might offer.
To find out more about how we can help, or to just get a quick quote to compare with your existing provider, get in touch today.
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