Since our last commentary on the process of 'exiting the European Union' circumstances have changed a touch, but not much. The pound has certainly lost value, but, do the reasons why tell us anything about what to expect as we approach the end of the year?
The potential for "hard Brexit' vs. the likelihood of a 'soft Brexit' has played out across the currency markets and seen GBP Sterling punished across the board. If the only attention you paid to exchange rates is qualified through the prism of a Brexit lens then you might think that such a drop was pure and simple condemnation of the government's strategy...
We would encourage you to remember that, it tends to be the case that, the pound softens from July through to the beginning of the fourth quarter, Brexit or no Brexit.
Europe was on holiday, Parliament was on recess and institutions and investors slope off to the safe haven that is the US dollar (or previously somewhat the euro) to wait until things hot up in the UK retail space.
Although at a multi year low, given the broader context, you'd be forgiven for your surprise that the pound has in fact held it's current position. Things are no more certain than they were before the usual seasonal lull, in fact, many are more pessimistic following the fallout from the Chequers proposal.
As brokers, what we're finding slightly annoying is that the media is using the drop in the pound as evidence of a broader global rejection of UK Plc's plan.
Of course it is the case that Brexit has given many cause to pause before diving into ventures and investments in the UK, but, it would be wrong to over egg the significance of an exchange rate move given that this is a time of year when the pound always looses value anyway.
EU and UK ministers have come out and suggested that a deal could be only a matter of weeks away. Pitch that against Labour stating they will vote down any deal put forward by the government, and one can understand why GBP is having rather a torrid time of it.
Turbulence will continue to animate the markets.
In fact, we are of the view that swings in the currency will on get sharper.
On 10th oct we saw GDP figures and a swathe of sentiment released to the market. This made barely a dent in GBP's fractional rally to the dizzy heights of 1.1450...from this we conclude that, with the shortening of the days comes a narrowing of the market's appetite for 'priced in' data that is indicative of Brexit uncertainty rather than overt contraction in the UK's performance. Remember, productivity is somewhat 'up'.
So, Holding a foreign currency? Selling it before the market gets more choppy would not be a silly thing to consider.
With a no deal you will find GBP weaker, but, everyone seems to be attempting to move towards some sort of the deal, hence, the weight of momentum is against you for now.
Forward buying wouldn't be a bad idea, but, why bother when holding GBP might very well yield you more anyway.
If you would like to chat about your matter and any exchange you are considering then we humbly invite you to give us a call. We are not technically, micro (or even macro) analysts, but there is value in you understanding how a commercially priced rate of exchange differs to that of a high-street one, and in you understanding how the two are priced differently...that is what we are here for - even if our dissection of the markets is a touch rudimentary.
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