Brexit extended: Is Europe playing trick or treat with the Pound?

Oh, what a night! April, EU, at the Brexit Summit…

We now have confirmation of an Article 50 extension until 31st October – essentially meaning we have until Halloween, of all days, to work out a proper Brexit plan! You couldn’t make it up! Everyone has an opinion on Brexit, but what does it actually mean for you, your finances and your business? We asked the Halo Financial Team what they thought an extension to the Brexit process could mean for Sterling exchange rates, the currency markets, personal finance and for UK business.

Richard Rawlinson, Head of Corporate Client Services, commented:

“It’s a scary time, Halloween, especially this year; and especially for UK business. So, the new Brexit deadline has been set for 31st October. We have had three years to finalise a deal and we are still no nearer today than in 2016. It’s interesting to note that 17 of the 27 member states wanted a longer extension; and in direct contrast, Emmanuel Macron, President of France, wanted a firm, fixed and faster deadline. The markets should remain range bound on majors, with mini peaks and troughs forming as the plot thins and thickens, but until something definitive is announced, any breakouts from expected levels of support and resistance remain unlikely.”

Alastair Sweetman, Senior Currency Consultant, has worked with Halo Financial’s individual clients for more than 14 years and is also optimistic about how the Pound will respond in the coming months, although there is clearly more uncertainty to come:

“In all honesty, I don’t believe the Brexit delay will affect the Pound too much – GBP volatility has disappeared over the last month with it trading 1-2% range against most majors and barring any significant upside/downside surprises in tier 1 economic data (Gross Domestic Product, Retail Sales, Employment, Bank of England monetary policy…), I believe that the Pound will tread water until we get more developments in the never-ending Brexit negotiations.

“The fact that Parliament has essentially blocked a no deal Brexit means that the Pound is supported and with unsubstantiated rumours of the German Finance Minister suggesting a five-year limit on the Irish backstop, perhaps we are getting closer to seeing the Withdrawal Agreement voted through? Equally, I think a second referendum/People’s Vote is also off the table – there appears to be lack of appetite from the Tories and many Labour MPs for that… We await more Brexit tedium with bated breath!”

Marc Ross, Senior Currency Consultant, works with Halo Financial’s corporate clients, and is conscious of the continued uncertainty for UK businesses.

“This decision is just another example of how Brexit has played out so far, showing how uncertain the whole process has been and will continue to be over the next six months. What this position does help us with is in pushing us towards a softer Brexit outcome, although there is still the possibility of a general election, bringing with it more volatility. A Brexit deal will be the most likely scenario to bring relief to our unstable outlook for both the UK economy and political system. Until then, we can expect GBP to be reasonably volatile over the coming months but within recent ranges.”

Exit the Brexit? Jonathan Russel, Private Client Currency Consultant, is in two minds about whether the extension is good or bad for the Pound.

“The fact that the Brexit deadline has been extended until 31st October has so far has offered no support to the Pound, which is currently trading within normal GBP ranges. While the news of the extension reduces the chances of a no deal Brexit, protecting against Sterling downside for the time being, it on the other hand prolongs the uncertainty, which may stifle any Pound strength until something significant happens.”

Charlie Horsley, Senior Currency Consultant, has been with Halo Financial for some six years and helps our clients sending individual international payments. His take on the situation is pragmatic:

“The extension of Brexit to the end of October, whilst largely expected, still has implications. With the deadline being shorter than it could have been, there should be more pressure on the House of Commons to agree Theresa May’s deal. Unfortunately for the Pound, it is likely that we will continue in this current trading pattern and tread water until we have a resolution one way or another.

“For sellers of Sterling, you want to be hitting the peak of the ranges ($1.32 and €1.17 on interbank rates). At the moment, it looks very unlikely that we will break from this, but data should begin to have some impact as we take a slight break from Brexit. Looking to take advantage of decent Gross Domestic Product (GDP) figures or positive soundbites from the Bank of England should be the strategy, these could cause the Pound to bounce to the tops of the current ranges and represent good opportunities to sell Sterling.”

What do I do now that Brexit has been delayed?

Well, first of all, don’t panic! Things are likely to stay at a similar pace – barring any sudden shocks – and the Pound is still pottering along in similar ranges against its key currency partners, so we are not seeing an enormous exchange rate spike either way.

We will, of course, keep you updated on any important developments, either political or economic, and how these may affect the Pound’s performance.