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September currency review

  • September 27, 2016
  • by Georgina Cope, moneycorp
September currency review

WHILE the deliberation over Article 50’s implementation continues, the UK economy continues to function as normal.

Earlier this month sterling enjoyed a boost on the back of positive British Purchasing Managers’ Index (PMI) data, indicating economic prosperity in the manufacturing sector.

On Friday however, the pound racked up a cumulative -1.7% average loss against the other dozen most actively-traded currencies as a re-emergence of Brexit worries stirred the currency markets.

Firstly, Bank of England governor Marc Carney told parliament's Treasury Committee that a further rate cut is possible this year.

Secondly, Prime Minister Theresa May has signalled that she could be ready to launch formal Brexit negotiations in January or February next year. Ouch.

Eyes have been turning to the US Federal Reserve and their September rate hike possibilities.

The dollar also got off to a bad start on Friday, with negative data releases showing both fewer than expected new jobs being created in August, and a slowdown in the services sector.

Together the numbers made the FED appear less likely to raise interest rates this month, with Goldman Sachs placing the possibility at less than 5%.

Higher interest rates tend to increase the value of a currency by attracting foreign investment, increasing the demand for the currency.

Conversely, low interest rates tend to represent a weaker economy and less attractive investment, therefore decreasing a currency's value (however safe haven currencies are typically less affected by this trend).

With several interest changes anticipated before the end of 2016, market volatility is expected to continue.

The euro rallied on Thursday when the European Central Bank failed to deliver the additional stimulus to the quantitative easing programme that many had expected.

However, just as the cracks have started to appear in the support for Angela Merkel’s Christian Democratic Party in Germany, we may see a lean to the right in other parts of Europe following the UK’s referendum.

Countries who account for over 40% of the EU’s economy are going to the polls in 2017, meaning the political landscape of Europe may be set to change dramatically, along with its monetary stability.

As always, if you have clients/members who are importing, exporting or being affected by currency in any way, we offer market insight, expert guidance on hedging risk, as well as being able to significantly reduce the cost of exchange and payments.

If you have any clients who are trading internationally, ask them to get in touch for a free, non-obligatory overview of the service we provide at moneycorp.

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