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What really lies ahead for sterling exchange rates?

Friday, September 23, 2016 9:07
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(Before It's News)

The rollercoaster ride of 2016 on sterling exchange rates is far from over! There are still numerous events up ahead to trigger large unexpected swings that will impact the value of your currency purchase, have you made any plans for this? Understanding how markets react, all of your options and having a helpful hand to guide you through will offer a real advantage to securing the best rate of exchange.

Economic data in the UK is not the main driver for the pound, the big factor is political concerns relating to the Brexit plus attitutudes to the UK viewed from a global perspective. Take the USD this week, we saw a big devaluing in the value of sterling for no real reason other than the fact the USD was appreciating in value in the face of a possible US Interest rate rise. Sterling was sold off as traders backed the buck – more on this later. Numerous data sets showing a relatively healthy UK economy should be taken with a pinch of salt until we get the firm economic data for the the quarter since the Referendum next month.

Sterling exchange rates will remain volatile and lacking direction until we get clear direction from the UK Government as to when Article 50 will be triggered. For now clients buying and selling the pound will have to contend with the mixed messages emanating from politicians. Theresa May has said she is in no rush to trigger Article 50, Boris Johnson indicated this week it might be early 2017 – and was soon lambasted for saying this.

Looking at some of the big banks predictions on sterling rates offers little help. Lloyds are predicting 1.20 by the year end whilst Dankse Bank are showing 1.08! All in all if you are looking to buy the pound there are likely to be further improvements between now and the New Year. Much will of course depend on which currency you are holding on what happens. If you are selling US Dollars will a Trump Presidency send the USD into freefall? Or will the steady hand of Clinton see the US raise interest rates at Christmas? If you are selling Euros will a decline in Eurozone economic activity trigger a further round of Quantitative Easing by the ECB? Or will renewed confidence in the region stem from uncertainty elsewhere?

It is currently the best time to buy the pound with US Dollars in 30 years and the best in 3 years with Euros. This isn’t great news if you are holding pounds looking to US Dollars, Euros or any other currency but as you can see things could get easily get worse for sterling.

In such an uncertain market with no clear direction a careful examination of all of your options including the Stop Loss and Limit order is crucial. A Stop Loss limits any losses if rates fall, a Limit order guarantees a price if rates rise. A forward contract allows you to lock in today’s rate for settlement up to 18 months in the future. me

It is almost six months ago today I was asked to speak on the BBC regarding the Brexit. At the time I suggested that on a Leave vote the UK economy would not just wither away. I pointed to the hundreds of thousands of businesses and consumers doing trade across border and highlighted how even on a Leave vote those links would remain. I discussed with the interviewer how nothing would change quickly and markets would have time to digest any news following an initial shock. All of this has so far proved true and it is with confidence I predict that the coming months will not see any fundamental changes in the situation, I believe that will all be reserved for 2017. However there will be lots of movement on the pound as the markets react to all manner of speculation and rumour just like it has since and leading up to the vote.

If you wish to discuss all of your options, the market and what to look out for on the rates please speak to me Jonathan by emailing jmw@currencies.co.uk. I am Chief Analyst and Associate Director of the UK’s largest privately owned foreign exchange PLC brokerage and have been working for our company for 7 years of the 17 it has been in business. If you have a transaction to make I will discuss with you all of the options available and everything happening in the market to help you maximise your exchange rate. Even if you believe you have everything covered it might be useful for another pair of eyes to have a look to provide some useful information.

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