No rest for the pound.
Sterling is still feeling a lot of downward pressure. Against the mighty USD, we could not get near the 1.23 level and against the Euro it was difficult to move above 1.11. In the last 4 months we have now seen over a 15 percent decrease in the pound’s value.
“How long will this last?”… is a question we are asked often. As we have said before there is a lot of uncertainty surrounding sterling at the moment. This is mainly to do with BREXIT, and how we leave the European Union.
Although this is important, the market is now using it as an excuse to find fault with Sterling. It does not help that the politicians do not agree, and this will only add uncertainty to the markets and ultimately will put further pressure on the pound. The markets, and probably the public, need to see definitive action from the politicians to perhaps inject some confidence and make the pound attractive to investors.
In the short term, where do we go from here? If we can stay above the 1.10 level, then we may well see the start of a slow move upwards; and it will be slow, with the first target 1.12 and after that 1.15. This would actually be a good level to get back to, and would give the market and currency buyers alike a bit of renewed confidence.
We also need to see a rise against the US Dollar. This has been the catalyst for the pound’s fall. A stronger Dollar due to the threat of higher US interest rates has not helped the pound’s cause.
So, this week look out for a small bounce in the rate. It will be small and the problem is every upward move gives the market an opportunity to sell. It’s a tough one but 1.1150-1.12 is actually not a bad level to buy euros in the current climate. Volatility will still be there and we do not think that will go away just yet. There is a lot more to come that will prevent the markets settling down.
Have a good week!
The Premier FX Team.
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This article was updated on the 17th of October, 2016.