The Bank of England's Super Thursday brought many disappointments as hopes for an interest rate hike continue to fade. The Pound remains close to its 2017 highs but for how long? The below table provides GBP/EUR, GBP/USD and GBP/CAD exchange rate movements within the last 3 months.
|Currency Pair||% Change||Difference on £200,000|
Yesterday showed just how unforgiving the currency markets are as a string of negative economic releases courtesy of Super Thursday sapped investor confidence in the pound. UK manufacturing and industrial production data fell considerably short of what was expected. The latest GB trade balance release also put into light the potential cost of driving the UK’s competitiveness on the international stage as it distances itself from the EU.
Exports only rose by £600m compared to a mammoth 2.9b rise in imports, forcing the UK’s trade deficit to £13.4bn, investment in foreign machinery and transport equipment the main culprits.
Construction data also dropped by 0.7% which finally rounded off the long list of data that has stopped sterling’s slow but consistent drive against it’s major currency counterparts in its tracks.
Investors were hoping for positive releases yesterday as it may lead the Bank of England to consider edging closer to raising interest rates which of course would boost the value of the pound. Unfortunately that long list of disappointing data and the Bank’s quarterly inflation report forcing the UK’s forecast up from 2.7 from February’s 2.4% made the prospect of any near term rate hikes very unlikely indeed. To give you an idea, only one (Kristin Forbes) out of 9 MPC members voted for a rate hike. Governor of the BOE Mark Carney said the rise in inflation stems entirely from GBP weakness and as such raising interest rates would only worsen the pinch felt by consumers as living costs continue to drive.
Despite all of this negativity, Sterling is still sitting at near 2017 highs against it’s major currency counterparts. It may be worth acting sooner rather than later if you are looking to sell sterling, just in case another negative economic release tips the balance entirely and sends Sterling back toward the 1.15 mark. Why not get in touch with your account manager who can help you plan for the next move in the market.
Having said that, it will be interesting to see how the markets react to the Labour party’s “unanimously agreed manifesto leak". With sterling’s value still held to ransom by the ongoing Brexit negotiations, political stability in the UK is key. As such, releases that put PM May’s position into doubt in the build up to the general elections will surely rock sterling’s value going forward.
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