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Brexit Blues Begone?

Published: Thursday 01 November 2018

  • Brexit and Budget dominate Pound
  • Light at the end of the tunnel for Brexit negotiations?
  • Anxious Asia Pacific markets look to China
  • Geopolitical dramas fail to dent US Dollar
While there hasn’t been a huge volume of economic data this week, the data that has been released has had a considerable impact; and there has been no shortage of political activity in the news. This has all had knock-on effects on the currency markets, which continue to be volatile.

Brexit and Budget dominate Pound

The big news in the UK, as well as the ubiquitous Brexit chatter, was the Budget on Monday 29th October; the UK vehicle for fiscal policy announcements taking place earlier than usual to allow plenty of time for Brexit negotiations and preparations.

The overall tone and content of the Budget were upbeat and forward-looking, with the UK Chancellor of the Exchequer, Philip Hammond, quipping and joking as usual, all the while making some fairly serious changes to the UK’s monetary policy. Despite being the last UK Budget before the UK leaves the EU, there was not much mention of Brexit. Mr Hammond instead chose to “accentuate the positive”.

The reaction to the Budget was mixed, but the general feeling has been that there were encouraging steps in some areas, not enough in others. Reports have also pointed out that Philip Hammond is taking a gamble in upgrading economic growth targets on the assumption that a suitable Brexit deal would be reached.

#ThursdayThoughts - Part One

The Halo Team has compiled a round-up of the key points from the Budget and also conducted research into what businesses across the UK want from their Budget.
Brexit Blues Begone - Halo Financial

Light at the end of the tunnel for Brexit negotiations?

Meanwhile, the Pound was under pressure from concerns mounting about the likelihood of a Brexit deal being constructed, as negotiations continue without resolution. A glimmer of hope on the afternoon of 31st October from Dominic Raab, the UK’s Brexit Secretary, pushed the Pound up against the US Dollar and Euro and inspired some confidence in the markets. Headlines earlier in the day had also struck a positive note, as Mr Raab insisted that an end was in sight and other commentators seemed similarly certain that negotiations are nearing a conclusion. Sterling was also bolstered on 1st November when rumours circulated that pressure was mounting on the EU negotiators to agree a deal including an equivalence arrangement regarding financial passporting from the UK into the EU. That would be a boon to the UK financial sector, which accounts for 6.5% of GDP. However, almost as soon as the positive reports come in, something contradicts it. News that reports of the financial sector deal are unconfirmed made the Pound drop down just as quickly. Now, all eyes are on what comes from the Bank of England announcements later on the 1st November.

A lack of significant UK data thus far this week has meant that markets have focused on these two “B’s” for a sense of direction for Sterling. The Pound has been at the mercy of currency movements across its main currency partners, including the commodity currencies, such as the Australian, US and Canadian Dollars, which are all jumping around in response to US-China tariff talks, market-moving Chinese economic data, and their respective domestic data results.

What to watch out for…

The Bank of England (BoE) announces its interest rate decision on Thursday 1st November, as well as releasing its latest statement, meeting minutes, and the quarterly Inflation Report. There will also be some insightful industry data to keep an eye on, in the form of the latest Manufacturing Purchasing Managers’ Index (PMI). While all these elements have the power to move the Pound, BoE Governor, Mark Carney, is due to speak on Thursday, and this could have an impact. His words often serve to weaken Sterling, rather than strengthen it, so it is worth watching out for how the Pound will react after Thursday’s events, especially following some much-needed positivity today.

Brexit briefings

You can read more about some of the potential implications of Brexit, opportunities and challenges in our Brexit commentary.

Anxious Asia Pacific markets look to China

Markets in Asia Pacific have been cautious this week, caught off guard by a surprise fall in Chinese purchasing data. Even though some change was forecast following the ongoing US-China tensions and trade tariffs, the result still took markets by surprise, affecting the countries with close trade ties to China, such as Australia.

Geopolitical dramas fail to dent US Dollar

In stark contrast to Sterling’s recent downward trajectory, the US Dollar continues to strengthen, as geopolitical effects seem to bounce off the USD like water off a duck’s back. Even disappointing economic data from the USA has had little effect. Next up are the manufacturing and employment figures from the US, so we will see if they have any effect on the USD.

Canadian Dollar is one to watch…

North American neighbours, Canada, have also been enjoying a boost to their currency from increased interest rates and positive economic data, but the Canadian Dollar remains volatile. If you are buying or selling Canadian Dollars, be aware and take action to protect any planned payments. If you want to talk this through with a currency specialist, it’s good timing, get in touch today.

Europe in a state of flux

And Europe seems to have its own set of troubles, with Germany’s Chancellor Angela Merkel announcing she will not run for the next elections; the Italian Budget drama; and, of course, Brexit and what that means for the EU. Business and consumer sentiment indices from the Eurozone have been lacklustre, and growth forecasts and monetary policy announcements from the European Central Bank have hindered the Euro in recent weeks. The Euro has been weakening against the US Dollar and awaits economic data to provide scope for strength.

#ThursdayThoughts - Part Two

…And some more #ThursdayThoughts from our wonderful client this week – it’s great to get feedback:

"Halo Financial is a fantastic business to work with. I would highly recommend anyone moving money from one country to another to use Halo as their intermediary. Thanks so much. I look forward to our next transaction."

Read more about what’s happening in the global economy and more detailed technical analysis on these key currency pairings and more in our latest Quarterly Reports.