It has been another rocky week for sterling exchange rates, with inflation on the rise and the UK still politically unstable, what happens next remains unclear.
Current UK PM, Theresa May is still yet to formally announce her deal with the DUP (though there seem to be rumours about talks with the Lib Dems now as well) - I don't think the pound will rebound until the Queen's speech takes place (this Wednesday).
Earlier last week, the Bank of England's interest rate decision caused the pound to gain about 1% against major currencies after BoE members 5-3 on keeping rates on hold, (expectation was a 7-1 vote). The translation of this vote basically means that we now seem to be closer to a rate hike than ever. The reason for this is the current inflation rises we are seeing in the UK and the lacklustre wage growth alongside it.
My only concern is that we will be raising rates solely to curb inflation, not because our economy is stable enough for it, and this could end up badly in a year or so from now. But I will write more about this as we get closer to an actual hike.
Onto this week, the most important event (apart from Wednesday's Queen's speech) will be Brexit negotiations formally starting on Monday.
Now, the Prime Minister has explained previously she will not be constantly updating the public about how negotiations are going, however, I feel that the EU will do the complete opposite. This means that we may start to see pretty biased news coming out about these negotiations, obviously in favour of the EU, which could cause the pound to weaken from time to time. Now it is also important to point out that these negotiations will take at least two years, so Monday is not a one-day event - it is ongoing volatility.
Short term, we will see the pound move around 2-3% up or down due to political events and economic data, however, the long-term move really does rely on Brexit negotiations, so the pound will be extremely sensitive to any news that comes out surrounding this.
This could potentially be a positive week for the pound (ignoring Brexit headlines), however, it is exactly these headlines that could keep sterling subdued even if the Prime Minister manages to organise her government effectively.