Glass half full for sterling in volatile year for currency

● The pound up 9% against the dollar on the year, but down 4 per cent on euro as forex mood swings

Sterling made a comeback in 2017, but failed to reach its prebrexit heights as uncertainty linked to Britain’s divorce deal with the EU continued to weigh on the currency.

The pound is currently up about 9 per cent on the year against the US dollar at $1.34 in a period that included in November the first rise in UK interest rates in ten years – from 0.25 to 0.5 per cent.

That compares with $1.23 at the beginning of 2017, but the currency is still well short of the $1.50 it was trading at just before the Brexit vote in June 2016 that sent sterling to threedecade lows.

Against the euro, sterling endured a more difficult 2017, falling 4 per cent to €1.13. That remains well down on the €1.31 the pound was at ahead of the EU referendum.

The currency started last year in the doldrums, drifting to a three-month low against the US dollar in mid-january as foreign exchange markets pondered the prospect a “hard Brexit” that would see the UK exit the single market and the customs union without a new trading relationship with the European Union.

However, Prime Minister Theresa May’s pledge to put the Brexit deal to a Parliamentary vote in her Lancaster House speech helped lift the pound 3 per cent to $1.24 on 17 January, 2017.

Scotland’s First Minister Nicola Sturgeon reignited the pressure in mid-march by outlining plans for a second independence referendum, causing sterling to hover near eight-week lows against the dollar. However, the pound recovered 0.6 per cent to €1.16 at the end of the month when May invoked Article 50 for the UK to formally quit the EU at end-march 2019.

The pound rose to $1.28 against the dollar and €1.20 against the euro in mid April, but slid back when the Prime Minister’s decision to call a snap general election on 8 June backfired and the UK was left with a hung parliament.

The outcome took the forex markets by surprise, having priced in a healthy Conservative majority. Some analysts believed the only reason the pound had not gone into freefall was because a hung parliament increased the likelihood of a softer Brexit.

The UK currency jumped to its highest level against the US dollar for a year at $1.36 on 14 September after the Bank of England gave a strong signal that a rate rise to cool inflation loomed – which was delivered on 2 November.

Going into 2018, currency markets are keeping a weather eye on the Brexit talks Retailers are said to be expected to be landed with £2.5 billion of unwanted presents over the Christmas period as the boom in online shopping leads to a flood of returned items. Logistics consultancy LCP says shoes have by far the biggest online return rate for a refund at 28 per cent. That is followed by clothes on 20 per cent and homewares on 15 per cent. LCP said the “flood” of returns puts severe pressures on retailers’ back-office operations.