Yesterday the Pound slipped following some weak economic data. In this report Joseph Wright looks at what's next for GBP exchange rates. The table below shows the market movements and the difference between the high and low points for a number of GBP currency pairings during the last year:
|Currency Pair||% Change||Difference on £200,000|
For the first time in two-years Britain’s unemployment level rose (4.4%), which wasn’t what the markets had expected which is why the Pound fell in value. I don’t expect this to impact the Bank of England’s plans to hike interest rates this May, but those of our clients hoping the Pound climbs throughout the year should pay attention to data such as this, in case a sudden downturn in the economy results in a sell-off for the Pound.
At the same time yesterday morning it emerged that average earnings during the same time (October-December) remained flat, although they did spike upward in December which is a positive for the Pound moving forward. Should average earning continue to climb and catch up with the UK’s inflation levels, I expect to see a stronger Pound as it’s likely that this would prompt the BoE to adopt a more aggressive monetary policy like many of its counterparts.
The expected rate hike in May has an 80% probability of happening at the moment, which suggests to me it’s already priced into the Pounds value. BoE governor Mark Carney did firm up this view yesterday as he spoke with a hawkish tone regarding monetary policy when speaking with the Treasury Select Committee.
Another factor scuppering Sterling strength has been reports of a divided Conservative cabinet, with news emerging that over 60 Conservative lawmakers have written to UK PM, Theresa May demanding a quick and clean break from the EU.
May has a chance to try and bring the two opposing sides of her party together later today at her country residence, the Chequers. May will be meeting with senior ministers to discuss her Brexit plans and this topic of Hard vs Soft Brexit is likely to be discussed. She is then expected to set out her Brexit plans within the next 2-weeks, before formal trade talks begin in March.
According to Reuters the UK only has 8-months to arrange a withdrawal deal, and May has previously confirmed that Britain will leave the EU at 23:00 GMT on the 29th of March 2019.
We’re likely to know the UK’s plans within the next month so I think the relatively calm currency markets may be in for a shock. If you would like to be notified in the wake of a market spike for the Pound, do feel free to register your interest with us.
On a similar note UK GDP figures will be released today at 9.30am, with 1.5% Year on Year expected. Do get in touch early today if you would like an update on this release.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me directly at firstname.lastname@example.org.
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