Two to three weeks ago, the expectation was that the Bank of England would raise interest rates. At present, after the last few weeks of disappointing data in the UK, all signs point to a low probability of an interest rate hike. The table below displays the market movements for a number of currency pairings in the last month:
|Currency Pair||% Change||Difference on £200,000|
Sterling was destabilised last week following Home Secretary Amber Rudd’s resignation. This was compounded when PMI data for the construction and manufacturing sectors - expected to show slight growth – ended disappointingly.
No clear party winner emerged in last Thursday’s local elections in England. Labour, the Liberal Democrats and the Green party increased their number of seats whilst UKIP and the Conservatives went down 123 and 33 seats respectively. The national vote was split – 35% each for the Conservatives and Labour, whose vote share was expected to be slightly higher.
The performance of the Conservative party was better than in 2012, 2014 and 2016, and when coupled with the slightly underwhelming performance of Labour, it seems that Theresa May’s government has consolidated its position.
UK Foreign Secretary Boris Johnson had appealed to US President Donald Trump to not throw away the nuclear agreement with Iran. Trump has long made his thoughts clear on the issue and if he is to be taken on his word, the USA will decide not to stick with the pact agreed by the Obama administration.
Johnson and Trump agree there are flaws in the agreement – but Britain, France and Germany have been working behind the scenes to preserve the agreement - however the Foreign Secretary did talk up the prospect of a Nobel Peace Prize if Trump were to fix North Korea and Iran. If the agreement were to fall through, a new deal without the Americans could be drawn up.
For the next week, I expect the Cable to continue a sideways trajectory between 1.34 and 1.36. My feeling is Pound has lost significantly in recent weeks, and that the market has mostly adjusted itself to the expectation of no interest rate hike this week. However, I would not be surprised if the GBPUSD continued to break the 1.35 resistance point at several points this week.
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