Sterling exchange rates haven’t really moved higher since Theresa May’s speech- the reason for this is because the EU has made clear that they are happy to have a free trade deal, but this will not include financial services in the UK. Simply put, banks in the UK will now have to consider making a move into the EU to enjoy the same passporting rights they have currently. This is simply business, if the EU can convince UK banks to move into Frankfurt, then the EU will benefit from their taxes and wage spend from their employees, if this is something that comes to fruition I can see the Pound having a pretty tough time moving forward as the UK predominantly relies on its services industry, financial services being the main one. Many analysts have revised down their forecasts following this news and are expecting GBPEUR exchange rates to fall considerably and for GBPUSD exchange rates to struggle to hit 1.50 this year as previously expected. Brexit negotiations should be played by ear as I don’t think anything concrete will be decided until midnight of the deadline, however, these headlines will be here to move the markets for the next 12 months, so please ensure you are hedging yourself when making your transactions!
The first main event this week to look out for will be Philip Hammond’s “Spring Statement”- this is not an official budget and is simply an update on the UK economy. It will be interesting to see how things are playing out and if his message is upbeat, especially due to the fact that the budget deficit has been lower than previously forecasted. Though GDP seems to be slowing in the UK, markets will be anticipating his growth forecast for the UK over the next year.
The next EU summit will be held on March 22nd-23rd, this is a significant event as this is when the Brexit transition period will be decided- by the looks of things this should be pretty positive as the UK Government has begun to concede to the EU’s demands in reference to rights for EU citizens in the UK and many other factors, this should make the negotiations a little easier and hopefully ensure a smoother transition period for the UK. A positive result here will reflect on the Pound straight away.
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