Pound rises as Boris declared new Prime Minister – Sterling has risen slightly today, in the run up to the announcement that Boris Johnson will be our new Prime Minister. The news was not a surprise, and had been widely forecast for some time.
Pound rises as Boris declared new Prime Minister
It’s a case of sell the rumour, buy the fact. For some time it’s been almost inevitable that Boris would win the leadership contest. This has been steadily increasing the chances of the UK leaving the EU without a deal. As such, investors have been selling Sterling, causing GBP exchange rates to drop. Now it has happened, investors are buying back Sterling and taking advantage of the fact it’s currently cheap to buy.
What next for Sterling?
The next few weeks will be key for the direction the Pound takes in the medium term. Boris will announce his cabinet, and will then attempt to re-open negotiations with the European Union. I think that despite the bluster and rhetoric from EU negotiators, it is quite likely they may make concessions to try and get a deal agreed. If this happens, the Pound is likely to strengthen by a decent margin, possibly 5% or more.
However, much also depends on UK politics. If MPs attempt to continue to disrupt the process, then this reduces the chance of a deal. Labour are likely to try and bring down the government through a vote of no confidence, in order to trigger an election. This would weaken the Pound significantly due to the uncertainty it would create. Furthermore, while there is political instability and no majority, parliamentary infighting will continue. While it does, the EU will probably not be keen to make any concessions, hopeful that a general election could be called.
So while the Pound is up slightly today, there is a long road ahead, with not much time to navigate to the end. Ultimately, MPs could continue to scupper the negotiations, which ultimately will only increase the chances of leaving without a deal. This would not be good for the Pound. If MPs can come together to try and get a deal agreed before the end of October, then the Pound is in for a significant correction to the upside. Which of these is more likely is currently impossible to foresee.
Do you need to exchange currency?
If you are worried about the Pound falling, then fixing the rate with a ‘Forward Contract’ is an option worth considering. It removes your exposure to the volatility and allows you to budget. This is very useful when purchasing property overseas for example.
Those that are less risk averse and think the rate could rise, can consider a Stop Loss order. This instructs your broker to purchase your funds if the rate drops below a pre-agreed level e.g. €1.09. You then have a worst case scenario while still allowing you to take advantage if the rate of exchange moves in your favour.
To discuss your requirements with a currency expert and get a quote, contact us today.