It’s safe to that say sterling has started the week well and truly on the back foot as the latest set of key economic data fell right across the board, potentially halting any kind of real progress from the pound in the days to come.
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Manufacturing output from the UK dropped well past the expected 1.2% mark to hit -2.1%, whilst the trade deficit widened to -£12.102B. Perhaps most significantly of all, UK Gross Domestic Product (GDP) data surprised the market with a considerable fall from 1.6% to 1.3% highlighting quite a heavy slow down in growth and reflecting the negative trend in business confidence we have seen over the last few months.
Despite all this, sterling managed to hold strong at the key resistance points of 1.14 against the euro and 1.28 against the dollar which suggests the markets remain confident that PM Theresa May will be able to get the key concessions she needs from Brussels to avoid a no-deal Brexit.
It will be interesting too if this resilience continues with this afternoon’s speech from Bank of England Governor Carney due ahead of tomorrow’s key inflation figures, and Friday’s anticipated retail sales figures.
Carney has consistently highlighted the risks of a no-deal Brexit to the UK economy, and if he singles out further concerns to a potential drop in inflation, there could be scope for sterling falling out of favour with the markets, making foreign currency more expensive. If you are selling pounds it might be worth reaching out to your account manager to outline your requirement and limit your exposure.
Of course, the main driver for the pound today will be the Prime Minister’s update to MPs. Her statement comes a day earlier than planned after a number of exchanges with Labour’s Jeremy Corbyn. May is expected to give Parliament another opportunity to vote on Brexit before the end of February. Now that the EU have declined any invitation to compromise on the withdrawal agreement, the consensus is that May will be pushing for more time to get a deal pushed through.
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