Sterling continues to strengthen following last weeks strong Manufacturing and Construction PMI. Is this a sign of recovery for Sterling following the Referendum result?
Having suffered a torrid Summer since the Brexit vote and the lowest levels seen in August since 2013, the Pound has started to make a recovery and at the end of last week we saw GBP reach a 2 month high against the Euro and the USD. The Pound’s fortunes were given a lift on Thursday with a large growth in manufacturing activity, but were boosted further still on Friday with signs of recovery in the Construction industry.
Since the Brexit vote we have seen three consecutive months of contraction in the construction sector, most likely due to businesses taking a more cautious outlook in their growth plans. Friday’s figure did show a reading below 50 still, which signals a decline, but it came in far better than many had expected and this suggests to me that there may be a less negative impact from the result of the referendum than originally thought. Could this be a sign of the dust settling and a return to strength for the Pound in the coming months? With this in mind, clients selling Euros may be wise to look at taking advantage of the market now whilst the Pound is still showing signs of fragility.
Over the weekend and today Theresa May is in China at the G20 meeting with a view to set up UK free-trade agreements following a Brexit. Before jetting off on Saturday, May claimed that the UK will be a ‘global leader’ in free trade following Brexit, but President Obama has already dampened her hopes after their meeting yesterday, claiming that the US would put their European Transatlantic Trade and Investment Partnership before a UK-US trade deal. May will also be hoping to set up an agreement with China, but there could also be tensions there over her decision to delay the Hinkley Point C nuclear power station plans over her concerns of China’s involvement in the project. Any developments here are likely to affect the Pound’s strength so it is crucial to keep in contact with your account manager here in this volatile period.
A real test of how the dust has settled since the referendum result will be today’s services sector data. The UK’s services sector contributes to over 70% of GDP and last month the reading showed the sharpest drop since records began. With last week’s improvements in the economy, this morning’s figures may follow suit, but I would urge anyone selling Sterling to get in touch with their broker here before the announcement, as any disappointing figures could see the Pound’s gains from last week quickly reversed. Those with a Sterling requirement should also keep an eye on this week’s GDP estimate for Q3 of this year. This will measure growth in the UK economy since the Brexit vote and as a result I believe that we could see a low estimate which could therefore impact on the strength of the Pound.
Whilst recent economic data has been strong, Brexit is still yet to happen with further Sterling losses likely as we approach 2017. You may want to make the most of the recent highs, call our trading floor on 01494 725 353 if you wish to discuss a currency exchange requirement.
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