(Newswire.net — November 22, 2017) — Heading into the midweek session, the cable was trading at 1.3237 (Wednesday, 22 November 2017), up from 1.3157 five days earlier. The currency pair has been hovering around the 1.3167 level for several days, attempting to find new support at the 1.3200 level. Ahead of the Budget Speech by Chancellor of the Exchequer Philip Hammond on Wednesday, 22 November, the GBP gained ground. It raced to 1.326, before retreating somewhat. Several big-ticket issues are impacting the value of sterling, notably the government’s plans with respect to the housing dilemma.
As it stands, house prices have risen sharply since the 2008 global crisis, but new construction has slowed down. With 3% CPI (Consumer Price Index) inflation and declining real wages, new homeowners are finding it difficult to enter the market. As such, government is under pressure to provide relief. The November Budget is one of the most highly anticipated economic indicators of the year, as it determines monetary allocations the economy. If Philip Hammond satisfies sceptics across the board, the GBP will enjoy a relative honeymoon session despite the Brexit uncertainties. The initial impact of the Budget Speech will be coupled with prevailing economic conditions vis-à-vis Brexit stress factors, the strength of the USD, geopolitical uncertainty and the like.
FTSE 100 Index Inversely Matches the Performance of the GBP
For the year to date, the GBP has appreciated sharply against the USD. It began trading at 1.23, and rose 7.6%. This is remarkable under the current market conditions. The Brexit stress factors have raised import costs for the UK, while exporters have enjoyed significant gains. This is evident in the FTSE 100 index which is currently trading around 7,411.34, up from 7,177.90 in January.
The UK all-share index will likely close out 2017 with strong gains, given that a weaker GBP boosts the domestic earnings of UK companies on this index. Recall that some 70% of listed companies on the FTSE 100 index derive their earnings in foreign currency abroad, meaning that when those funds are repatriated, they are worth significantly more in the UK. It is notable that a stabilization of the GBP is coupled with a weakening of the FTSE 100 index.
Is the future of British FinTech at Stake?
Whether the GBP appreciates relative to other currencies or not, there is an even greater concern about Brexit proceedings. To date, many major corporations and regulatory authorities are leaving the City of London, in favor of European capitals like Paris. This exodus will cost the UK hundreds of millions of dollars every year, especially if replacement investments and capital inflows do not take place. Currently, the UK operates on the cutting edge of FinTech innovation.
Many of the leading cryptocurrency companies have established operations in the UK, and their future is now also in doubt. International investments in digital currency startups have soared in 2017, with Bitcoin rising over $8,000 per unit as the world adopts blockchain technology en masse. This prompts the following questions: Is the UK market equipped to deal with cutting-edge technology when a crippling Brexit is snapping at its heels? And what is an ICO? These are important questions that UK regulators, politicians, and economists will be grappling with as they seek to hammer out an efficacious Brexit deal.
UK Government Prepared to Cough up £40 Billion to Divorce EU
Another factor which is likely to impact the value of sterling is the government’s determination to pay a hefty divorce settlement to the European Union. In Prime Minister Theresa May’s cabinet, various high-ranking Brexit supporters are fully prepared to offer the European Union more money for fast-tracking a trade deal with the United Kingdom. Several leading conservative MPs including Michael Gove and Boris Johnson have agreed to back up Prime Minister Theresa May in offering this settlement.
However, a handful of conservatives including Nigel Evans have protested the government’s decision. Evans labelled it the equivalent of a Ransom Payment. Recall that according to the terms of the Lisbon Treaty, the UK has 2 years to finalize its extrication from the European Union. If the UK fails to do that, and no consensus is reached about an extension, the divorce process will be finalized with the status quo in effect. In other words: the UK needs a blueprint for Brexit to safeguard its interest on the continent.
Leading currency trading experts, Winston McAuliffe of Olsson Capital believes that the settlement figure is an essential component of propelling Brexit talks forward: ‘The European Union is unlikely to let the UK off scot-free. They require a financial commitment from the UK to be released from major future investments and undertakings with European countries. These include construction projects, humanitarian projects, military programs, pension schemes, infrastructure development and so forth. That a figure of £40 billion has been suggested indicates the seriousness with which Britain takes its commitments to European countries. The EU will certainly welcome this offering, and it will most likely open the doors to trade talks. We can expect the GBP to stabilize with EU affability.’