How Brexit has affected the pound
12 months on and it is interesting to see just how much Brexit has affected the pound so far. The pound is down against a basket of currencies, notably it is down 15% against the US, Australian and New Zealand dollars and 13% against the Euro. The pound had a reprise on Wednesday when data showed a reduction in government debt which investors saw as a positive. This provided a spring board for sterling when Andy Haldane, BoE chef economist indicated its getting close to time to reverse the post Brexit interest rate cut. .
Last week the Queen’s speech not only revealed several cuts to the Conservatives’ manifesto pledges but outlined the intentions of the British government when leaving the EU. It indicated there would be a clean break from the European Union which would take Britain out of the single market. Despite reservations of a DUP tie –up in the media to investors another election would be seen as far worse, investors saw May’s £1bn deal may deliver a more stable government and therefore a positive for the pound. However investors need to watch out for the rise in support for Labour leader Jeremy Corbyn, who sees the Queen’s speech on 28th June as a chance to unseat Theresa May and ultimately take over as Prime Minister. As he explained ‘there’s a possibility of voting it down and we’re going to push that all the way.” If the Queens speech is voted down this could be the chance the Labour party need.
Professor Patrick Dunleavy, from the London School of Economics (LSE), said that “losing the Queen’s Speech vote is the equivalent of losing a vote of no confidence”. He then went on to say “at that point, Theresa May would have to resign but it is not clear that we would have to have another election.” This could cause further instability for the pound.
Over the pond there have been reservations by many as to the impact Trump would have on the US economy, however many believed he would be ‘good for business’. Today Trump faced harsh criticism from the International Monetary Fund (IMF) following their surprise move to cut its US growth forecasts. It has criticised Trump’s recent budget proposals and no longer believes Trump will boost economic activity.
Yellen speaking today during an exchange in London with British Academy President Lord Nicholas Stern painted a strong picture of FED’s positive actions giving them credit for bringing stability to the US banking system. Last week banks passed the first round of the FED’s stress tests and went on to make a very bold statement, that another financial crisis similar to the recession in 2008, “was not likely in our lifetime”.
Perhaps Yellen has been drinking the same tonic as ECB Chief Mario Draghi as he made his feelings clear that he is feeling optimistic about the Euroland economy as he made reference to deflationary pressures being replaced by inflationary ones. Unemployment is low and consumer confidence is high, the perfect cocktail to lift spirits and ease the anxieties of investors. This in turn lifted the Euro to its highest level since September 2016.
To find out how these currency movements can affect the price of your transactions, please contact moneycorp on +44(0)20 7589 3000 quoting ‘Bank Exchange Rates'. Alternatively start making transfers today by clicking here to open a free no obligation account.