Currency Matters – What the currency market is going to do next

What is the currency going to do next
What is the currency going to do next

Last week we saw a classic example of how experts simply cannot predict what the currency market is going to do next. The pound fell after a rise in UK interest rates which shouldn’t happen (according to the pundits) and people are bound to have been wrong-footed.

So, you need be very cautious and buy or sell euros when the rate is good for you – remembering that you can also reserve an exchange rate by using a forward contract if you don’t have all the money available to pay for it yet.

So what’s going on which could affect the exchange rate? The latest UK government shambles threatens to weaken Theresa May’s grip as PM following the resignation of Priti Patel, International Development secretary. Each trip or stumble brings the prospect of a Conservative coup and the unwelcome prospect of general election closer. Meanwhile Brexit talks have resumed, so any hints on progress, or lack of it, are likely to cause uncertainty for the pound. This just makes the exchange rate more volatile (jumpy) even though it might stay within a certain range.

At the same time the EU cut economic growth estimates for the UK over the coming two years but conversely they forecasted the fastest rate of growth for the Eurozone in a decade.

So, what’s happened to the exchange rate this week?

The pound has gained slightly against the euro (1.13) and is also up against the US dollar (1.315). The euro has also gained against the dollar (1.165) all of which means the dollar is bottom of the class this week. This maybe due to over-optimism with regards to how soon President Trump will be able to implement corporate tax reforms in the States.

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