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Sterling volatile after draft Brexit deal reached

Mon 19 November 2018

The week ahead:

  • UK Public Sector Net Borrowing data (Wednesday, 9.30am)
  • Euro zone purchasing managers’ survey data (Friday, 9.00am)
  • US purchasing managers’ survey data (Friday, 2.45pm)

Highlights from last week:

  • Brexit deal breakthrough spurs sterling/euro to 7-month highs, but gains short-lived
  • Euro zone GDP growth slows as Germany’s economy contracts
  • US inflation edges upwards

The Week Ahead: Brexit remains a key focus after draft deal reached

A quiet domestic data calendar this week means Brexit developments remain key to sterling’s fortunes. The situation remains fluid but a special EU summit is expected to take place on Sunday (25 November) to finalise the UK’s withdrawal agreement after a draft deal was reached last week. There remains the possibility of significant volatility as we move through Brexit’s next stages.

The Confederation of British Industry’s Distributive Trades Survey (Tuesday, 11.00am) will provide an insight into the health of the UK retail and wholesale trade sectors. UK Public Sector Net Borrowing data will follow on Wednesday (9.30am).

Several economic releases will offer a gauge of the resilience of the euro zone economy. November’s preliminary consumer confidence data will be in focus (Thursday, 3.00pm). Confidence slipped to its lowest ebb since May 2017 in September, although it recovered modestly in October. November’s purchasing managers’ survey data covering the manufacturing and services sectors across the region will also attract attentions on Friday (9.00am).

Updates on the US economy’s progress will include housing construction starts data (Tuesday, 1.30pm), existing homes sales figures (Wednesday, 3.00pm) and initial jobless claims data (Thursday, 1.30pm). Purchasing managers’ survey data for services and manufacturing activity will round off the week on Friday (2.45pm).

View UK, US and euro zone announcements with our economic calendar

Other key data releases:

Reserve Bank of Australia policy meeting minutes (Tuesday, 00.30am)

Bank of Japan Monetary Policy Statement (Tuesday, 2.00am)

Japanese consumer price inflation data (Wednesday, 11.30pm)

Swiss industrial production data (Thursday, 8.15am)

Canadian consumer price inflation data and retail sales data (both Friday, 1.30pm)

Last week recap - Sterling volatile after draft Brexit deal agreed

The pound endured bouts of volatility last week as Brexit developments gathered pace. It initially rose to seven-month highs versus the euro on Tuesday as it emerged that UK and EU negotiators had reached a draft withdrawal agreement.

Theresa May went on to gain the backing of the Cabinet for the deal which confirmed a transitional period through to the end of 2020 with a further extension possible. However, the pound subsequently slipped after Northern Ireland minister Shailesh Vara quit the Cabinet despite the proposed deal preventing a hard Irish Border. It fell further after Brexit Secretary Dominic Raab was amongst other Cabinet ministers to also resign. This fuelled speculation that Mrs May could find it difficult to push the Brexit deal through Parliament and perhaps face a leadership challenge. Calls for a vote of no-confidence in Mrs May grew as the week went on.

Meanwhile, the latest UK data provided mixed news. Wages grew at the quickest pace in almost a decade in the third quarter. Pay growth excluding bonuses rose by 3.2% compared with a year earlier in the three months to September. This is above the annual inflation rate, which held steady last month with consumer prices rising 2.4% in the year to October. However, retail sales declined in October for a second month in a row, adding to signs that consumers are curbing their spending.

A telephone conversion of £10,000 into euros through our Currency Service at midday on Friday would have purchased €11,167.

Euro zone growth falters

European Gross Domestic Product (GDP) data confirmed a slowdown in euro zone growth in the third quarter. GDP growth registered 0.2% during the quarter. This in part reflected a slowdown in Germany, the bloc’s largest economy. The German economy contracted quarter-on-quarter for the first time since 2015, with output falling by 0.2%. A temporary disruption to German car production along with global trade disputes hindered the county’s exports performance.

US inflation edges higher, supporting case for higher interest rates

October’s US inflation data contained few surprises. Inflation edged up to 2.5%, from 2.3% previously. This was largely a response to higher energy prices, as expected. Combined with the US economy’s impressive growth performance in recent months, the data appears to be consistent with expectations that the Federal Reserve may opt to raise interest rates again before the end of this year. If it happens, this would be the US central bank’s fourth interest rate rise of 2019.

A telephone conversion of £10,000 into US dollars via our Currency Service would have purchased US$12,651 at midday on Friday afternoon.

South African retail sales grew at their slowest pace in 18 months in September. Sales rose by 0.7% compared to a year earlier, significantly lower than expectations and down markedly from August’s 2.5% rate. The South African economy fell into recession in the second quarter of the year and this latest data potentially points towards a slow recovery.

A telephone conversion of £10,000 into South African rand via our Currency Service would have purchased ZAR 179,928 at midday on Friday afternoon.

The Australian dollar gained ground after data showing Australia’s employment market remains buoyant, with a better-than-expected 32,800 jobs added in October. This was sufficient to keep the unemployment rate unchanged at 5%, its lowest level in more than six years.

A telephone conversion of £10,000 via our Currency Service would have purchased AU$17,440 at midday on Friday afternoon.

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