The fragility of the Pound has been demonstrated over the last few weeks of trading. We saw GBP/EUR strike an eleven month high against the Euro at 1.1599, GBP/USD was close to hitting 1.45 (pre-Brexit levels) and nearly 1.85 on GBP/AUD.
This was based on positive UK data and the news that Britain would have access to the single market during the Brexit transitional period. This gave many economists and investors the view that a rate hike from the Bank of England (BoE) would occur in May. We have since seen Sterling fall against the majority of major currencies.
A host of poor data has been released. Retail sales was shocking, there was predicted to be a fall to -0.5% and it fell to -1.2%. Inflation moved below average wage growth and GDP fell to 0.1% the lowest growth figures for five years.
The table below shows the market movements for a number of GBP currency pairings yesterday:
|Currency Pair||% Change||Difference on £200,000|
There is now little justification for a hike by the BoE tomorrow at this month’s interest rate decision. Even the fact that unemployment sits at a 43yr low can be argued against due to the inclusion of zero hour contracts which can hardly be viewed as stable employment. I would be surprised to see a hike tomorrow. I would not expect a huge fall for Sterling based on rates being kept on hold however. What will have the power to cause a swing in Sterling’s value is governor of the Bank of England, Mark Carney’s speech and the BoE minutes.
These could give a hint to monetary policy moving forward. With negative data mounting it may be the case that a rate hike may be off the cards for the foreseeable future, possibly even 2019. If the cat is let out of the bag the Pound could be in for losses. It may be wise to trade today, before tomorrow’s decision if you are selling Sterling.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.
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