STERLING today remained stable as recent gains from a post-Brexit transitional agreement continue to be felt.
At 9am this morning the pound had risen up $1.4075 on April’s second trading day following the bank holiday.
Traders pointed to the strong historical performance of the pound in April, when it tends to rise versus the dollar as foreign companies shell out more dividend payments to British shareholders.
The pound gained after Britain last month secured a transition deal with the European Union for its exit from the bloc, and the Bank of England confirmed a hawkish tilt in its monetary policy, but the rally ran out of steam.
But some analysts say it is mainly the broad weakness of the dollar.
This is linked to a trade dispute between the US and China that’s keeping sterling above $1.40.
Despite the optimism, there is plenty of room for turbulence for the pound in the interim from UK-EU negotiations.
Investors will recall that foreign exchange traders wrongly bet in the run-up to the June 23, 2016 referendum that Britain would vote to remain in the EU.
Forecasters were spot-on, however, with their predictions on how much the pound would fall in the weeks after a vote to leave.
While it was on a tear in January, sterling has yet to reclaim $1.50, where it was trading just before the referendum.
Only four of 55 contributors to the latest poll taken March 1-6 thought it would be trade there or higher 12 months from now.
Bank of England policymakers sound more keen to raise interest rates in coming months, but most currency strategists say that is priced in.
With the British economy still lagging the rest of its peers, the risk is that the central bank will deliver fewer rate rises, not more.
How to get the best holiday money rate
WE spoke with Hannah Maundrell, editor-in-chief at money.co.uk to find out how you can guarantee the best rate when you go on holiday
- Don’t buy cash at the airport – you’ll always be able to beat the rate with a bit of forward planning
- Compare travel money companies online – Factor in delivery costs and choose the option that gives you the most cash to spend on holiday. If you’ve left it until the last minute order online for airport collection so you get the best of both worlds.
- Use comparison tools – MoneySavingExpert’s TravelMoneyMax enables you to compare pick-up and pre-order rates.
- Don’t pay for travel money with a credit card – it’s likely you’ll be charged a cash withdrawal fee which adds to the cost.
- Top up a prepaid card to lock in your rate now – Choose your card and read the T&Cs carefully as some apply hefty fees. WeSwap, FairFX and Caxton FX are all worth checking out.
- Always choose to pay in the local currency rather than sterling – This will help you avoid sneaky exchange fees
On February 5, the Dow Jones stock index fell by more than 1,000 points in its biggest one-day fall since the start of the global financial crisis.
The drop in US markets, which spread to the UK and Asia, began as investors showed concern of increasing inflation and potential hikes in the US interest rate.
Mona Mahajan, investment strategist with Allianz Global Investors in New York, said: “When you have rates moving upwards, typically what happens is that financial conditions tighten, things like bank lending, mortgage lending start to slow and then the economy is at risk of a potential downturn.”
With the value of the pound so closely linked to the outcome of the UK’s departure talks with the EU, all eyes will remain firmly fixed on the remaining Brussels negotiations – with the toughest part, the trade talks, still to come.
Both the UK and the EU’s remaining 27 member states will face “substantial losses” without a deal on Brexit, according to a recent report.
Europe would be clobbered by 1.2million job losses if no agreement were reached, while Britain would take a 4.5 per cent hit to GDP, according to the Centre for Economic Policy Research.
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- UPDATE 2-Sterling drops 0.5% amid worries on funding to back UK spending plan
- FOREX-Dollar dips as risk sentiment proves elusive
- FOREX-Dollar drifts as risk sentiment proves elusive
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