Sterling Outlook Uncertain after Mark Carney Comments Last Night (James Lovick)

The pound is struggling to gain real momentum in what has been a fairly tough week for sterling exchange rates. The comments from Bank of England Governor Mark Carney last night suggesting that he may consider additional Quantitative Easing does not make for comfortable reading. Quantitative Easing or printing money proved very negative for the pound when this action was taken following the financial crisis of 2008 and the credit crunch which followed.

The poor run of UK GDP numbers and weaker inflation this week have effectively pushed back those interest rate hike expectations with the next hike expected to happen in November. Only last week this was expected to happen in August which does indicate a real shift in the UK’s prospects in the short to medium term. GBP EUR is still relatively supported and not too far off the 1 year highs recently seen. The risk for clients is that Mark Carney is prepared to use all options depending on the different Brexit outcomes.

Clients looking to buy Euros or dollars with pounds are likely to see a boost in the rates but only when the UK data turns around and the outlook for UK growth looks much stronger. Retail sales data arrived better than expected yesterday although I would expected to see a major boost in next month’s retails sales figures which will of course include the period of this excellent British weather we are having for this time of year. Clients will need to wait a full month for these figures and there are other headwinds approaching. Clients would be wise to plan around these events to avoid disappointment.

Brexit is about to become very interesting as we move towards a vote on the Brexit withdrawal bill in the House of Commons. If Prime Minister Theresa May is defeated in the Commons then this could trigger a vote of no confidence which could even end up in another general election. General elections usually result in political uncertainty and the currency in question falls. In this scenario with Brexit such a heated topic there could be something of a constitutional crisis depending on the election result and this could be very bad news for the pound.

On a more optimistic note for sterling if the government can win the votes and push through the planned vision of Brexit then the pound could rally higher. It is my understanding that the government is leaning on Labour politicians who represent heavily Leave backing areas with a view to relying on their votes. This is likely to be a very interesting and volatile period ahead and could create some excellent opportunities for both buyers and sellers alike.

For more information on sterling exchange rates and how these events will directly impact on the levels available and your own currency requirement then please contact me at [email protected]