The Pound’s struggles this week after the political uncertainty and the Windrush scandal, which saw Home Secretary Amber Rudd resign on Sunday, were compounded further yesterday with a raft of poor economic data releases.
Consumer Credit (lending on credit cards and loans) slumped to its lowest levels in six years, whilst UK manufacturing data yesterday dipped to a 17-month low, with employment, new business and production all slowing.
Although much of this can be attributed to the poor weather this winter, there are fears that this slump in economic activity, coupled with Friday’s disappointing GDP data, could show an underlying weakness in the economy. The backlash for the Pound from these fears began to be realised yesterday, with the Pound falling to its lowest levels since January against the Dollar and a near two-month low against the Euro.
The below table shows the market movements for a number of currency pairings in the last 30 days:
|Currency Pair||% Change||Difference on £200,000|
The Bank of England’s highly anticipated monetary policy meeting is on Thursday next week and just a month or so ago investors were pricing in the chance of an interest rate hike at this meeting as a distinct possibility, which helped the Pound to make significant gains across the board. With this slump in data in recent days the chances are becoming far less likely of a hike this month, with Lloyds now predicting only a 20% chance of a rate hike in May, and as a result we could see the Pound’s value spiral lower.
The Euro is also showing signs of weakness, with a fall in inflation and question marks over whether they will wind down the Quantitative Easing programme in September as they announced at the beginning of this year.
The question now is which currency will come off worse in the longer-term and which one can capitalise on the other’s demise.
Unfortunately for the Pound it also has Brexit to contend with, and there was more fanning of the flames over this topic yesterday. In response to the government’s defeat at the House of Lords over parliament having a say in the final decision on Brexit, Theresa May said that the government will be robust and will ensure that a smooth Brexit is able to be delivered.
But many MPs were unhappy with her response, arguing that they should have a final and decisive say on the EU withdrawal bill, which could give MPs the power to halt the UK from exiting the EU if no deal is agreed and even make the Prime Minister return to the negotiating table if they are unhappy with the terms.
The issue over the UK’s relationship in the EU’s customs union is also still up for debate, with Senior politicians set to meet today and discuss the different options available. Chancellor Phillip Hammond is expected to push forward the idea of a ‘customs partnership’ which would essentially mirror the EU’s current regime and allow for tariff free trade.
But Brexiteers are likely to be very much against this as it is likely to be very expensive and would essentially mean that the UK are still abiding by the EU’s customs arrangements and their ‘hands would be tied’ in negotiations over trade deals. With tensions rising, news from this meeting could create further volatility on GBP exchange rates and see the Pound fall further still. Keep in touch with your account manager here to keep up to speed with events as they unfold.
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