Is This the Calm Before the Storm for Sterling?

Euro to Pound: Brexit Deal Looks Unlikely

Sterling hasn’t fluctuated much this week despite the UK seeing its first leadership debate of this general election campaign. Markets are currently optimistic about the direction of politics in the UK, with pound sterling trading at around 1.1681 against the euro, and 1.2935 against the dollar. It’s been a tumultuous year for the markets, so let’s have a look back at the rollercoaster ride for foreign exchange.

No Deal Impact on the Euro and the Pound

Prime Minister Boris Johnson swore when he took office in June, that he would ensure the UK would leave the EU on 31st October “with or without a deal”. As the Halloween deadline crept up, it looked more and more likely that there could be a cliff edge Brexit, with the UK crashing out of the EU suddenly and plunging the country into World Trade Organisation (WTO) rules, with businesses facing the prospect of tariff and non-tariff barriers when wanting to trade with the EU. This would result in huge additional costs for companies and send the markets into a downward spiral.

Despite doing the near impossible, the Prime Minister negotiated a new deal with the EU. Markets responded favourably, but unfortunately, Parliament prevented the deal being voted through once again. This resulted in Boris Johnson calling a general election, causing the pound to drop to 1.1574, with the prospect of even more uncertainty shaking the markets. At this point in October, it was also unknown whether the EU would grant the UK a further extension to Article 50, to avoid that no deal Brexit.

Sterling Against the Dollar

Sterling has risen 5% against the dollar since the end of September, correlating with the prospects of the Conservative Party winning a majority on 12th December.
Assuming the Conservative Party win an outright majority as the polls currently predict, 2020 could be a good year for sterling. The British pound could rise by 8% by the end of 2020 to $1.39 according to analysts. This would be its highest in 18 months.

However, it was around this point in the 2017 election that Labour began to make gains and change the narrative of its campaign. Labour is due to publish its manifesto today, and focus on somewhat radical plans to overhaul the economy and public spending not seen since the 1970s.

Given the markets’ awareness of the volatility of the UK electorate, we might not see a rise in sterling until after the election when we have a clear result.

If you would like further information or a free quote when buying euros, feel free to contact me directly and I look forward to hearing from you.

Tom Holian