UK economy handicapped by on-going Brexit talks

Sterling rallied during the early part of yesterday’s trading, with a move through 1.20 against the Euro before a heavy retraction in the afternoon. There was also a spike through 1.27 against the US Dollar and 1.71 against the Australian Dollar, providing further advances for those clients holding the Pound. Sterling benefitted from market uncertainty surrounding the Eurozone and in particular Italy, who’s Prime Minister Matteo Renzi resigned following the NO vote reached in the Italian referendum regarding prospective political reforms.

We will look at this in more depth later in the report but the uncertainty his void could create will most likely increase pressure on the Eurozone economy and the Euro could suffer as a result.

Sterling has gained market position over the past few weeks and it may be an opportune time for those clients holding Sterling to take advantage of the current highs, as we have seen it snap back, in particular against the Euro, with 1.20 seemingly providing a lot of protection for the single currency.

The Pound is likely to come under further pressure over the coming days, as the Supreme Court ruling regarding the triggering of Article 50 gets under way. Yesterday was the first of the four day hearing and although a result is not expected until early January 2017, the uncertainty surrounding the result and how we will then facilitate our Brexit is likely to cause investor confidence in the UK economy to dwindle. This will have a knock on effect for Pound Sterling and as such, the current levels could look extremely attractive in weeks to come.

Whilst the market is likely to factor in any potential outcome from the hearing, the Brexit is still going to be driving the market and Sterling for months to come. I do not have enough faith in the UK economy at present to assume that the current spike will continue and I’m still of the opinion that sustainable Sterling strength is unlikely.

Key economic data for this week

Looking at key economic data releases this week and yesterday we had Services PMI data come out better than expected, which helped to support the early market support for the Pound.

There is little data of note for the UK today, so the on-going Court hearing is likely to dominate headlines. Tomorrow is a big day for the UK with the latest Manufacturing & Industrial Production figures, along with the NIESR GDP estimate. This is followed closely by investors due to the insight it gives us into the UK economy and future growth prospects. Expect additional market movement tomorrow following these releases.

Thursday is another quiet day for the UK, so Friday’s Traded Balance figures could take on more weight than usual, whilst of course, any indication about the Supreme Court ruling on whether Article 50 has to be ratified through Parliament will have a significant impact on Sterling’s value.

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