From the headline, you would assume that all Brexit fears were non-existent and that there were plenty of positive factors underlying Sterling exchange rates currently- the reality is that neither is true.
Before we go on to why this is all happening- it is important to note that if you are a business or individual with Euro exposure- current rates are definitely worth considering for hedging yourselves- the future is still very uncertain for Sterling, and these are great opportunities to begin mitigating your risk.
The main reason (From a political perspective) why Sterling exchange rates have been spiking is that the chances of a “No Deal” Brexit have been decreasing by the day- the initial weakness for the Pound over the last year was due to the fact that if a “No Deal” Brexit were to happen, then bad times were expected for the UK economy- now that it seems unlikely, it is now being priced out of the exchange rates.
Secondly, Mario Draghi gave a generally negative overview of the Eurozone economy last week, suggesting that they may be facing a downturn, which is negative for Euro exchange rates- this has still not been backed up with data, however, it gives us an idea of what is expected for the Euro over this year.
This week, Parliament is expected to vote on Theresa May’s “Plan B” on Tuesday. From what I have seen, it seems unlikely that this deal will get passed and will probably suffer the same consequences as her deal earlier this month- which does leave the UK in pretty uncertain territory. As we are aware, there are a number of different scenarios which could occur following this deal being rejected, and I am unsure if the Pound has enough of a reason to remain strong at this point.
Generally, the markets are still expected to be very volatile, it is just that the Pound is benefitting from some strength currently- so if you would like to discuss your requirements/plans moving forward please don’t hesitate to contact me.