Why is the Pound rising – The Pound has continued to make against the Euro and US Dollar today, rising back towards 1 month highs. (Click here to view live graphs).
What caused the Pound to rise last week?
Sterling had a decent bounce last week due to a slightly more optimistic tone struck during talks that the Prime Minister held with his French and German counterparts. There wasn’t much detail to back up this optimism however. Ahead of the Bank Holiday weekend GBP/EUR had retreated back into the €1.09’s. Last week’s moves were largely due to optimism that perhaps a Brexit deal could be agreed after all.
Why has Sterling gone up today?
While last week’s gains were due to a possible Brexit deal, today’s gains were more about avoiding a ‘No Deal’ Brexit. Since Boris became PM, he has put ‘No Deal’ firmly back on the table, hopeful that the EU would take the threat seriously enough to alter the Backstop and agree a new deal. This approach may or may not work, however many MPs don’t want the risk of leaving without a deal. So today Labour and others held meetings to try and avert a No Deal Brexit. This could take the form of a vote of no confidence, or more likely, passing legislation in order to force the PM to request another extension to Article 50.
Markets seem to like the thought of No Deal being removed entirely, and that’s why the Pound has pushed higher today. In reality, the EU aren’t likely to make any concessions while the chance of No Deal being removed anyway still exists. Trying to remove Boris, or force him to request an extension, could therefore hamper the negotiations and actually increase the chances of leaving with No Deal. So it’s quite a gamble that might have the opposite effect to what’s intended.
Will the Pound keep rising?
Anything that reduces the chances of leaving with No Deal will continue to help the Pound. Whether this is caused by MPs plotting to scupper Boris’ Brexit approach, or by said approach being successful in terms of getting a deal agreed, will both probably send the Pound higher still. However, there are still big risks the Pound could fall much further. Leaving without an agreement would cause significant uncertainty. Markets do not like uncertainty so this would probably send Sterling much lower.
How could a General Election affect Sterling?
If a vote of no confidence results in a general election, or if Boris decides to call one himself, then this could push the Pound either way. On the one hand, an election would generate uncertainty, and this could weaken the Pound. Markets don’t like the prospect of a Corbyn government, so this possibility could spook the markets.
However it could also be argued that an election could mean Brexit being delayed or scrapped entirely, both of which would probably send the Pound higher as it would remove much of the uncertainty that has been weighing Sterling down.
Another scenario is an election which Boris wins. Recent polling has suggested he could command a majority in parliament. This could also help the Pound, as it would remove many of the barriers that the Conservative party have faced in trying to get a Brexit deal agreed. With a large majority, they could push through a deal with little chance of it being blocked.
Navigating this volatile market
The next few months could throw up a number of possible scenarios, each of which could impact the value of the Pound in differing ways. For those that need to make a large transfer, these moves could cost (or save) you thousands of Pounds. To have a free consultation with a currency expert, contact us today or send me an email.
We can discuss your requirements, explain your options, and provide you all the necessary information to help you make an informed decision on what action to take and when to fix a rate. We can also provide you with a quotation to show what exchange rate we can offer you. (Typically our rates are 2% to 3% better than banks or other brokers may be able to offer, so the savings can be considerable.)
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