Risk appetite hits the pound, what is in store for sterling this week?
Sterling has posted some losses to start the week following yesterdays poor service data as the the service sector clocked its slowest rate of expansion since September 2016 in January.
As a result, the Pound (GBP) trended lower across the board on Monday, with its weakness exacerbated by the latest signs of division over Brexit within the Conservative government.
Sterling is a currency that many see as risky option due to concerns surrounding Brexit. As a result, and following a significant shift in global risk appetite, sterling has been one of the biggest losers.
Yesterday global shares took a tumble, with the US market taking a particularly big hit. In fact Monday was brutal for stocks with the Dow Jones index falling 4.6%, it largest fall since August 2011 and the aftermath of “Black Monday” when Standard and Poor’s (the US credit rating agency) downgraded the US.
This sentiment was felt in European and Asian markets creating a huge market sell off. As a result sterling was to lose significant ground against both the US dollar and Euro. It did post gains against the Australian Dollar however, often regarded as a risky currency due to hits high yields, which to me suggests much of yesterdays market movement has been risk based.
What can we expect for the pound?
The biggest losses for the pound were seen against the US dollar, interesting considering the Dow Jones took such a beating. Recently we have seen some positive data from the US which has heightened speculation that the Federal Reserve will look to raise interest rates in the short/medium term. For this reason we could easily see GBP/USD trend lower and whilst rates are still close to 1.40 any buyers of the US dollar may wish to look at their positions.
Any one looking at sterling should also look out for the major release of the week (from the pounds point of view) in the form of the Bank of England interest rate decision at 12:00 on Thursday. No movement is expected however the accompanying press conference from Mark Carney should be viewed for any future insight to the central banks monetary policy.
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