Sterling remains in the eye of the Storm

Sterling to end year above monthly average

The pound has traded in a relatively narrow range against the Euro over 2017. The aftermath of the election result drove the pound to a year’s low of 1.0745 in August but since then the optimism (now fading) over the agreement on stage one of Brexit saw it recover to make a high of 1.1507 this month, a level that was last seen in early June.

The average monthly range for the pound versus the euro has been 406 pips in 2017 with lower volatility in Q4 only averaging 318 pips, with this month, naturally, being the lowest at 263 pips as traders reflect and prepare for the commencement of negotiations over a future trade deal following Brexit. The pound has averaged a rate of 1.1441 over the past twelve months. This level provided resistance in December.

Versus the dollar the pound has fared a little better than against the single currency as the greenback suffered an overall fall of a little over 10%. Following the significant fall in June 2016 due to the result of the Brexit referendum, the pound has risen from a low of 1.1986 in January’17 to a high of 1.3658 in November. Most of Sterling’s volatility has been driven by the general weakening of the dollar which has faced a significant year, the first of Donald Trump’s Presidency.

Considering your next transfer? Log in to compare live quotes today.

Brexit to dominate 2018

The word Brexit has become a staple of the English language and isn’t likely to disappear any time soon. It has become a “catchall” word for several conditions which ail the UK.

The political fallout will continue as Parliament grapples with its overall remain credentials despite having to engineer a Brexit agenda. The Prime Minister remains on shaky ground as she tries to form set of policies and proposals that satisfy both sides in her Cabinet and the opposition struggle to come to terms with its overriding remain agenda despite many of its voters supporting departure from the EU.

The economy continues to suffer primarily due to the lack of business investment driven by uncertainty over what Brexit will mean to manufacturers and trading businesses. The City faces uncertainty and an unparalleled challenge to its position as the preeminent financial centre in Europe, if not the world.

The consumer, the lowest common denominator of the economy, is starting to turn away from its support as inflation remains high and wages lag. The hike in interest rates in November served to (apparently) reverse the knee-jerk reaction to the Brexit vote but as hikes have a more immediate effect than cuts, it is the consumer who faces a drop in spending power.

Italian election announcement to drive Short Term Euro volatility

It was announced yesterday that the Government elections in Italy will take place on March 4th. This will drive the Euro as speculation mounts that the inevitable coalition Government will be driven by an anti-Brussels feeling which will damage European unity. With Germany looking more and more likely to return to the polls as Angela Merkel fails to find sufficient common ground to form a Government, the prospects for the Eurozone have suddenly taken a turn for the worse.

The positive effect of the withdrawal of economic stimulus will now be countered by the political uncertainty as well as the losses the ECB is likely to incur on the sales of assets it purchased as part of its stimulus package in 2015/6.

Analysts tend to dwell on bad news when forecasting the prospects for an economy. With G7 currencies, particularly the dollar, pound and euro facing headwinds, the Yen could prosper as rumours start of a tightening of monetary policy as concerns over the long-term effect of negative rates emerge.

Finally, the early stars of the New Year are likely to be the currencies of the “Dollar bloc”; the Canadian, Australian and New Zealand dollars, all appreciating on the back of higher energy and commodity prices.