Pound subdued despite strong economy
Yesterday was a mixed day for Sterling. We had the latest Industrial and Manufacturing numbers, which beat forecasts showing 0.4% growth, showing the these sectors are still robust. Manufacturing output is at it’s highest in over 10 years! A UK GDP estimate also came in above forecast at 0.6%, showing that the UK economy is actually in very good health, despite warnings that the vote to leave the EU would cause a recession and nearly a million job losses. The reality is unemployment levels are now at their lowest since the 1970’s.
The strong economic numbers from the UK didn’t however cause any gains for the Pound, with GBP/EUR rate still stuck in it’s range at around the €1.13 level. The reason that Sterling didn’t strengthen was the fact that Trade balance numbers were lower than markets had been expecting.
Despite the fact that UK economic figures continue to show the economy is doing very well, the Pound is unable to make any gains due to the uncertainty about Brexit. In my view, this isn’t going to change any time soon until we see some clarity on what a UK/EU trade deal will look like.
When will the Pound go back up against the Euro?
Longer term there is every reason to believe that the Pound/Euro rate will rise back to the €1.20 level we were close to a year ago, however this is unlikely to happen in the short to medium term due to the uncertainty I mentioned above.
Moving forwards, I think it is very likely a good trade deal will be agreed, and the closer we get to this, the higher the Pound will go. When you look past the EU and look at what individual European nations want, then it’s clear that they understand a deal that works for the UK and EU is in everyone’s interest.