Sterling Still under pressure – Brexit Negotiations Continue to Drive Market Sentiment (Matthew Vassallo)

Sterling has remained fairly flat this week, with little economic data of note to drive for the UK to drive its value.

The Pound did make some inroads against both the EUR & USD following some strong Manufacturing & Industrial Production figures earlier in the week. GBP/EUR HIT 1.12, with GBP/USD touching 1.32. However, these gains did not last long and the Pound retracted before close of European trading yesterday.

The UK economy remains extremely fragile in the eyes of investors. Its long-term future remains unclear, with Brexit negotiations already proving arduous despite them only entering the 5^th round of talks this week. Reports continue to surface that a deal may not be struck, a scenario that could potentially have devastating repercussions.

It is becoming apparent that the UK government and its Brexit negotiating team led by David Davis will likely have to concede more ground that our EU counterparts, in order for things to progress beyond the current stalemate.

However, another problem facing them is the political division inside the ruling conservative party. Prime Minister Theresa May is under increasing pressure and unless she managed to realign her party and the UK public, will she be in the position long enough to oversee our transition and separation from the EU?

With so many unanswered questions I have little confidence in Sterling managing to sustain any major improvements against the other major currencies.

Over recent months investors have started to move their away from Sterling; a once safe haven currency of choice and the Pound’s value has diminished as a result.

Which direction the Pound takes next is a difficult question to answer and whilst no immediate recovery seems to be on the horizon, talk of a prospective interest rate hike by the BoE has at least helped alleviate some pressure.

This has transpired to move Sterling away from the recent 8-year and 31-year lows against both the EUR & USD.

Looking ahead and it is likely that only a breakthrough in Brexit negations and an element of political stability can release Sterling from its shackles in the short-term and until then I expect any spikes to be met with resistance around key market thresholds.

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