A few moments ago we saw the latest UK GDP figures, showing the the economy grew by 0.6% in the last quarter, much better than expected again again confirming that despite the uncertainty caused by Brexit, the economy has not been affected as most of the experts had predicted. Since last week, we’ve seen GBP/EUR rise from €1.13 to €1.18:
UK Economy robust despite Brexit fears
Before the referendum there were many saying that a vote to leave would mean rising interest rates, negative GDP leading to a recession, that stock markets would fall and in general the economy would suffer significantly. While the Pound has fallen against the Euro and US Dollar, the other fears have failed to materialise. Indeed the UK economy continues to perform robustly, confirmed again by today’s GDP figures.
There is also speculation that in this weekend’s meeting between Trump and May the foundations will be set for a UK/US trade deal, that would benefit the UK significantly.
What could happen to GBP/EUR and GBP/USD rates in 2017?
GBP/USD – I think that despite the UK economy growing, when article 50 is invoked and negotiations begin, there will a period of uncertainty that will keep pressure on the Pound. Also, the predictions of increased infrastructure spending in the USA, coupled with rising interest rates across the pond, is likely to strengthen the US Dollar and make it more expensive to purchase. For these reasons I don’t think that we’ll see GBP/USD rise above $1.30 at least in the short term.
GBP/EUR – This is slightly trickier to foresee. In the long term I think we’ll see GBP/EUR back to €1.25/€1.30 by the end of this year, but it may get worse before it gets better. This currency pair is being pulled in 2 directions – Brexit uncertainty is keeping the Pound under pressure, however the EU also has problems that I think will weaken the single currency this year. Political uncertainty in Holland and France coupled with serious economic problems for many EU states are likely to come into focus this year.
In summary, I think there is much to be positive about in the coming years, and exciting times are ahead that are also likely to cause volatility in the currency markets.
Ultimately there is no way to forecast which way exchange rates will move, however with a sound knowledge of what is moving the market, coupled with a range of contract types that protect you if the rate moves the wrong way, you can ensure you don’t get caught out by sudden moves in the rate.
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