What has characterised this stability for the Pound has been some glimmers of economic fortune in the post-Leave vote landscape, as well as further confirmation of delays in the formal proceedings for our exit from the European Union. Essentially we are receiving signals of normality returning to the markets, and the Pound is finding some support as a result.
However, this adjustment to the new economic climate in the UK is in its infancy. There will be key data sets this month to be aware of if you are in the process of buying or selling foreign currency, and a premium will be put on being able to move quickly should any opportunities emerge.
The Pound, the Brexit vote, and UK economy
The Pound had a rollercoaster of an August with initial drops against the likes of the Euro totalling almost seven cents before recovering three of those by August 31st.
When August rolled around we had our first opportunity to quantify the immediate effect of the leave vote on the UK economy. The results, as many will already know, were dire enough to immediately warrant an interest rate cut from the Bank of England and the escalation of emergency financial stimulus in the form of quantitative easing.
Yet after this concerning news there were some outstanding performance figures which broke through a lot of the doom and gloom narrative on the Pound. The retail sector for example boomed with 6% growth in a single month, and for once the UK had some healthier inflation readings after seemingly perpetual issues in this area.
The beginning of September has also brought forth further positivity, with the best improvement in manufacturing outlook for the UK within a single month for 25 years. It seems manufacturers are envisaging a fantastic improvement to their competitiveness both on the domestic market and abroad.
UK manufactured goods are now a more viable option at home as foreign goods are more expensive to UK companies following the Pound’s sudden slide, and by contrast our goods are also more competitive than they once were to foreign markets thanks once more to a cheaper Pound.
However, anyone holding Sterling and are planning a currency purchase should not assume a rise for buying rates. Whilst there are improvements the UK is still dealing with the shock of the leave vote. It is not even until later this month that we will get our first look at how employment has been affected. Many will remember the prolific news articles about immediate staff cuts and hiring freezes following the Referendum. There will certainly be days with a red flag planted in them this month for anyone considering buying a foreign currency.
With the recent confirmation out of Chequers from Theresa May that we would not be entering into formal negotiations until 2017 at the earliest the Pound seems to be enjoying the pressure being lifted from above its head. But events both at home and abroad will continue to govern exchange rates, and as a result, we can expect these to continue to fluctuate heavily in September.
I strongly recommend that anyone with a foreign currency buying or selling requirement should contact their account manager to discuss the options open to them ensure any opportunities which emerge this month are not missed. As long as your account manager is aware of any upcoming need, any important information can be relayed immediately in order for you to make an informed decision and safeguard your transfer.
Euro’s rally slowing following questions of economic stability
With the announcement of an upcoming Brexit much of the focus has been taken away from events across the channel when discussing where buying or selling Euro rates are likely to journey too.
But with the formal proceedings to leave the EU still delayed until next year, markets are looking much more towards the present, and events in the Eurozone are coming to the fore once more.
The stress tests on the top 50 Eurozone banks last month highlighted some terrible flaws in the Italian banking sector, which are now nearing the point of requiring a bailout. Whilst Euro buyers cannot expect the same effect on the value of the Euro as the saga surrounding the Greek bailout last year, we’re certainly seeing some cracks appear the visage of the Eurozone.
But the run-up to the Referendum did see the Eurozone become an attractive investment opportunity compared the UK with questions marks over its future. The result was that over 300% more capital has been invested in the Eurozone compared to this time last year.
Their growth figures are also remaining steady, with Tuesday’s growth still showing expectations of 1.6% for the year, even higher than what the UK was projecting pre-Referendum.
In the immediate term, political concerns among the EU’s powerhouse economy Germany should find some footing in the currency markets. Angela Merkel’s CDU party suffered a blow in the polls in Mecklenburg-West Pomerania, a North-East German state, where her party were beaten into third place. The vote itself is viewed as a key test before the general election next year.
Given that Angela Merkel has been a staunch supporter in encouraging financial assistance to threatened Eurozone countries, the rise of nationalist parties and further calls in the German parliament to deny loans and financial assistance abroad raises question marks over the future stability in the Eurozone itself.
Is there potential here to put the Brexit in a different light next year if the Eurozone is struggling? Perhaps. But in the meantime the market’s short-term focus will likely be governed by events in the UK.
A few key data releases in Europe will still likely present some opportunities for Euro buyers, particular those from individual countries such as Italy and Greece rather than any showing the collective average of the Eurozone.
If you would like to be kept informed about any of these upcoming data releases and discuss how these may impact any upcoming transfer you have planned, I recommend contacting your account managed to discuss these in more detail.
Is the US Dollar beginning to show chinks in its armour?
The US Dollar’s sustained presence at 31 year highs against the Pound for two months now is unprecedented. It has barely moved away from the peaks reached at the start of the July, and reflects just how much strength the Dollar enjoys as a ‘safe-haven’ currency during times of severe uncertainty.
But there are now signs of life showing in buying Dollar rates. We have brushed through the previous peak of 1.33 reached by the beginning of August, with opportunities for further movement in September still available.
The US Dollar lost some ground last week with a decline in job growth by over 100,000 from the previous month, and it was only two months ago that they recorded their worst figures in over 4 years. These erratic hiring patterns without the significant changes to the US economy’s performance to match it shows confidence in the US economy is beginning to shake.
There are a few culprits for this. Firstly, the US is also largely dependent on its financial services industry, which has suffered from lost global confidence in the stability of the financial sector following the leave vote. Secondly, the election is now just a few months away, and with as controversial a character as Trump in the mix, it’s hardly ideal conditions for long-term financial planning for any company. Hence demand for US Dollars to conduct investments is expected to diminish.
Whilst Hillary has been gaining in the polls, she has since stalled and Trump has regained ground in more than a few national surveys. Will this momentum come at a key moment? Will he shine in the upcoming debates? There is still plenty of time for polls to impact the Dollar’s value.
Furthermore, with only a third of the year left for any of the four planned interest hikes the FED were mentioning at the beginning of the year, markets are beginning to question whether any hikes will happen at all. If one does not happen this month commentators are anticipating the next opportunity not to emerge until December. Further delays will likely drag down on the Dollar’s value as we have seen in the past.
With so much yet to unfold, and the traditional currency weakness which surrounds an election, clients looking to sell US Dollars will have to hope for a sudden deterioration in the UK’s circumstances to assist their position. But with the common understanding that the UK’s most recent economic indicators suggest the likelihood of a recession at home has diminished, US Dollar sellers may be wise to take advantage of the current highs which have generously remained in the 1.30’s and even at points in the 1.20’s for over two months.
The Australian Dollar strengthens from RBA interest rate hold
As another economy which has recently cut their interest rates to record lows, the Australian economy and the Australian Dollar by connection have enjoyed their own rollercoaster during August. Overall, those buying Australian Dollars have seen the greatest gains since the absolute lows reached following the Referendum. Rising by just over 6%, anyone with a €200,000 purchase for example has seen this become over £7000 cheaper.
After hitting 1.65 at the beginning of August this was quite a feat and a relatively tempting opportunity.
On Tuesday the Reserve Bank of Australia voted not to pursue any further cuts, and made it quite clear to markets that they were not considering any further monetary easing at this point. Comments like this caused the 1-2 cents gains against the Pound seen later that morning, and shows, at least for this month, the central bank in Australia will not be giving Australian Dollar buyers a helping hand.
Furthermore, this was the final meeting with Glenn Stevens as the governor of the RBA, we will have to wait until next month to see if his successor, current Deputy Governor Philip Lowe, has the same inclinations to keep the Australian Dollar weak.
From a seasonal perspective, with the Australian winter coming to a close and the benefits which come from the ramping up of the tourist season for the Australian economy, the Dollar should be seizing further support in the near future.
It seems that further improvements for Australian Dollar buying rates will require some stimulus from the UK side of the pairing. With the trajectory of the UK economy still largely uncertain post-Leave vote it may be prudent for anyone with an Australian Dollar buying opportunity to consider moving sooner rather than later. Even if your requirement is not until later in the year these current buying levels can be fixed in place for anyone considering a foreign currency (even as far as 18 months in advance) for peace of mind concerning any planned transfers in the future.
To keep track of current exchange rates visit our live foreign exchange rates page. Alternatively you can call our currency brokers directly on 0044 1494 725353.