Strong UK data supports the Pound
Sterling has risen both yesterday and today following some robust UK data that increases the chance of interest rates going up. Firstly, the Office for National Statistics revised up Friday’s UK jobs numbers, after making a mistake in their calculations. The numbers were actually better than they had originally stated, giving the Pound a decent start to the week.
This morning, further encouraging numbers in the form of Industrial and Manufacturing production numbers were also much better than markets were expecting, which again shows the UK economy is resilient to Brexit uncertainty and ticking along rather well.
Last week the Pound had faltered a little on political uncertainty, but this week it looks very unlikely that Theresa May will face any sort of challenge, and instead is likely to re-shuffle her cabinet to re-assert her authority. This has removed some of the Pound’s weakness.
Brexit negotiations; time for the EU to start negotiating?
Elsewhere, no further progress has been made with Brexit negotiations. Theresa May said yesterday that the ball is in the EU’s court, to which they replied that it’s still in our court. Personally, I think that May has made concessions with her Florence Speech, and it’s time for the EU to do the same. Other EU countries are starting to say the same thing. The clue is in the word ‘negotiations’ which means compromises need to be made. In my view the EU’s stubbornness to move talks on to trade is hampering any progress, and this will do great harm to both the UK and EU economy should they refuse to budge. May again warned of a ‘no deal’ scenario, but markets shrugged those comments off and Sterling didn’t really react.
What next for the Pound?
Later today we have the latest UK GDP estimate. Last time it was 0.4%, so anything below this could hamper any further Sterling gains. Another barrier to GBP/EUR going any higher is the resurgence of the EU economy. It’s performing fairly well, and if it continues to do so, the Euro could continue to strengthen which would pull GBP/EUR Rates lower.
The Pound’s next move will likely be caused by any developments from UK/EU talks, and also some key Thursday UK data – a BoE report into consumer credit, and a speech by a BoE member that might give further clues as to when interest rates may be on the move.
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