Will Sterling take another pounding at the coming election?
With a 2.1% rise, sterling had one of its best days in a decade, reaching a four-month high after prime minister Theresa May called an election for June 8. The euro too enjoyed a surge with Emmanuel Macron leading Le Pen into the second round of the French elections. It’s not just election fever that’s in play, however; each morning bleary eyes squint nervously at the news, mindful of the ever-present possibility that Trump may trigger total turmoil by attacking North Korea or trying to force Russia out of Syria. These events cause the FX market to remain extremely unpredictable and there is no reason to think that this volatility is about to end.
The general election is the next major UK political event and over the coming weeks, polls will play an important role in the value and direction of the UK currency. The big question is, of course, who will win? Although we have all learnt to be hesitant of the forecasts, there does not seem much doubt that Theresa May and the Conservative government will increase their parliamentary majority. Polls can be wrong, but since current indications show 47% of the electorate backing the Conservatives while only 28% support Labour, they would have to be very wrong indeed for the Conservatives not to make large gains.
And if the Conservatives significantly increase their majority, what changes do we expect in government policy? Firstly, there’s no doubt that May would see this as a clear endorsement of her Brexit policy, which she claims will strengthen her hand in the coming negotiations. Secondly, and less often discussed, she will have been elected on her own manifesto (something she will be busily writing even as this short piece is being put together), and will no longer be burdened with the policies she inherited from David Cameron. This is highly likely to bring confidence to the markets and bring further support to the UK currency.
The British general election has certainly strengthened the pound over the short term, even though longer-term uncertainty will remain as the Brexit negotiations drag on through the next two years. Despite the lift lent by the election, one cannot ignore sterling fundamentals, including the large current account deficit, slowing growth and a low-interest rate environment.
In short, stability is still some way off. What does all this mean for your international transactions? What impact would a Le Pen victory in France on the 7th of May have on the euro? UK economic growth has dropped below predicted levels and a hard approach to Brexit may knock the pound off its precarious perch. And all the while, there’s intercontinental posturing…
We’re sure to see sharp movements in the coming months, so let’s make sure you’re not on the wrong end of them. Whether you need a one-off transaction or regular cross-currency payments, privately or for your business, we can help you get the best exchange rate and reduce the forex risk. To find out how you can protect yourself against any possible losses, call us on 0203 582 3957 or visit our website on www.audensa.com