The European Central Bank did as everyone in the world expected yesterday and left interest rates on hold at 0%. The accompanying press conference was always going to be the main talking point from the meeting and so it proved. President Mario Draghi delivered a speech in Frankfurt, in which he said there could be ‘financial uneasiness’ in the markets if the UK and EU were unable to agree a Brexit deal before the deadline.
With only five months to go, it is clear that time is now running out and the contingency plans that banks and other businesses have in place will have to be rolled out before long. This could mean moving head offices or employees, as well as a whole host of other strategies. It is becoming apparent that relying on the government to agree a deal with the EU is not necessarily the correct course of action anymore.
In a thinly veiled criticism of Trump, Draghi also said that politicians must work to protect the independence of central banks. The comments came in response to a question about Trump’s recent attacks on the Federal Reserve, where the US president said that the central bank is too keen to hike interest rates. Draghi was also asked if he was worried that the spread between Italian and German bonds could continue to widen and if it did, would it cause impairments to Italian banks’ balance sheets. Draghi replied that he didn’t have a crystal ball.
In fact, nobody has a crystal ball and nobody knows what is going to happen to sterling movements over the course of the next year. Some banks believe the pound will strengthen before the year is out, while others think it will weaken. Over the course of the next 12 months, there is a 31-cent difference between the minimum and maximum GBP/USD rate predictions.
You can protect your money from this volatility, however. It’s a good idea to advice your clients to speak to their Personal Trader on 020 7898 0541 about how a forward contract can help them lock in a single exchange rate.