The Pound recently received a boost from the Bank of England, as they hinted at another rate hike next month. As this has been taken into account by the markets, if this doesn't come to fruition we could see Sterling weaken as a result. This GBP report looks at how this could affect Sterling rates in the coming months. The table below shows the difference in GBP you could have achieved when buying £200,000.00 during the high and low points of the past month.
|Currency Pair||% Change||Difference on £200,000|
Sterling traded in a relatively flat fashion yesterday, after UK Manufacturing figures beat expectations ever so slightly. Despite the UK Manufacturing Purchasing Managers’ Index (PMI) dropping to a one year low in the first quarter of 2018, yesterday morning’s figure was still better than expected and importantly it’s still higher than the average figure since the UK exited its recession in 2009.
PMI figures measure the health of the underlying sector and it’s based on key indicators such as the employment environment along with new orders and inventories. Due to the figure being quite forward looking, and it can be a key barometer of the health of the industry it covers.
Manufacturing accounts for around 10% of the UK economy, so although it’s not the main driver of UK plc, major deviations from the markets expectations can result in movement within financial markets. Sterling was boosted slightly after the reading for the first quarter of 2018 was 55.1 vs the 54.5 expectations. The average figure since the recession has been 53.4 so I would expect to see the Pound soften should PMI drop below this benchmark consistently.
Sterling was boosted mid-March when it emerged that the UK and EU’s Brexit negotiators have come to an agreement regarding the transitional arrangements. Markets had been waiting on this news for some time so it was unsurprising to see Sterling boosted as the news broke, with GBP/EUR hitting a 9-month high.
Sterling has also been boosted with the Bank of England dropping hints of another rate hike next month, which was put the UK base rate up to 0.75% which would be the highest level since the economic crisis over 10-years ago.
So far Sterling has managed to hold onto these gains although I do think that should any further issues surrounding the Brexit pop up, we could see a fall for Sterling. Also, if economic data suddenly turns for the worse and a rate hike isn’t justified, I think there is a chance Sterling will drop as the hike is already priced in.
Economic data is likely to be followed closely for these reasons, with this morning’s Construction PMI and tomorrows Services PMI likely to be the key economic releases this week. The services sector covers two-thirds of the UK’s economy so I expect any deviations from the 50.8 expected to result in price movement for the Pound.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.
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