Trading Markets With Capital.Com: February 2019

15 Feb 2019 | 04.00 pm

Trading Markets With Capital.Com: February 2019

What does 2019 have in store for euro and the pound?

15 Feb 2019 | 04.00 pm

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David Jones (pictured), chief market strategist with Capital.com, provides live market updates daily on the Capital.com YouTube channel. Here, he wonders if the pound can stage a comeback

There’s a well-known quote when it comes to forecasting financial markets: ‘Avoid predictions — particularly those involving the future’. This is most apt at the moment when it comes to the fortunes of the British pound and the euro. At the time of writing, we are still no nearer to knowing what the UK leaving the EU is going to look like. 

The best barometer for market sentiment on the Brexit issue is the UK’s currency, sterling. The referendum back in June 2016 saw a massive collapse in very short order, and the pound hit a 30-year low against the US dollar later that year. Since then, sterling continues to be knocked in both directions by political developments — or rather, by the lack of them.

When it comes to the euro/sterling rate, the last couple of years have not been quite as dramatic. EUR/GBP has been stuck in a wide sideways range: at the lower end one euro buys £0.83 and at the top £0.93. In the middle of January 2019, it was pretty much slap-bang in the middle of the range, with EUR/GBP trading at £0.88.

Anyone hoping for a further crash in the pound (assuming Brexit happens) could be disappointed. The UK leaving the EU does not, of course, have implications just for the UK economy. The International Monetary Fund said last year that Brexit will affect long-term output and jobs in the EU, and Ireland could be one of the economies to be most affected if the UK trades under WTO rules.

The traditional economic powerhouse, Germany, saw its economy grow last year at the slowest rate since 2013, and there are real concerns of recession in 2019 for many of European countries, which does not bode well for the euro.

There is, clearly, potential for a tough year all around. But perhaps the pound will confound the gloom of recent years and stage a comeback. What is interesting is how the British currency has reacted to the disarray in the House of Commons. The pound gained ground early this month against both the euro and the US dollar.

One argument could be that all the bad news is out there. We know the worst case outcome is for the UK to leave with no deal. With that out in the open, anything else looks a lot more positive. After being under pressure for so long, don’t be surprised if the pound makes a comeback in the next couple of months.

 

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