Sterling recovers slightly but may drop in the coming days

GBP/EUR rates recovered back above €1.15 this morning before dropping back away slightly. The move upwards was partly due to the fact that polls show that if another Scottish referendum were to be held, at the moment even more would vote for Scotland to remain part of the UK than when they voted in 2014.

This has calmed the market somewhat, and also the fact that Article 50 won’t be triggered for another few weeks has provided some relief for the Pound.

Earlier this morning UK jobs data was released, showing that unemployment is at its lowest in more than 40 years, which is positive. However Sterling actually fell, and that’s due to the wage growth data showing that it’s slowing. If wage growth continues to fall and drops below inflation, then consumers will have less money to spend.  The Bank of England won’t raise interest rates in this situation, and if interest rates remain at their current low level then Sterling will remain weak.

On the subject of interest rates, it’s likely that this evening the USA will raise their base rate which will likely strengthen the USD and weaken the Euro, so we may see GBP/USD rates dip slightly. However it’s widely expected already so probably already priced in to rate for the most part.

Today is election day in Holland. The polls won’t close until about 8pm UK time and exit polls may give some indication of the result, but it will be the middle of the night until we know for sure. While Geert Wilders may win the vote, he won’t be able to form a coalition. If he doesn’t win, then once markets open again tomorrow morning, we may see the Euro gain some strength which would pull GBP/EUR rates lower.

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