Good morning. We’ve seen the UK currency rebound this morning. I mentioned in yesterday’s post that we would see the latest UK services data today. This was released at 09:30am and was better than forecast. The number came in at 55.1 against a forecast of 54 (anything above 50 indicates expansion). Services is a very important release, as it comprises about 80% of UK economic output. Due to its importance, this release often affects the currency markets. The decent result shows that the UK economy continues to beat expectations, and it’s looking more and more likely the dip in economic output earlier in the year was largely down to the cold snap we had in March.
What next for the UK Currency?
Pound/Euro rates have risen to around €1.1350 due to this morning’s data. This puts the Pound back in the middle of the €1.13 / €1.14 range that it’s been stuck in for several months. As I’ve said before, unless UK interest rates go up, or we get progress with Brexit negotiations, I can’t see much changing in the short to medium term. Tomorrow we have a speech by the BoE governor Mark Carney. His comments often affect the currency markets. However when he speaks the Pound tends to weaken as he is generally rather pessimistic about the UK economy.
Of more importance will be what details we hear about the UK’s new proposals on future UK/EU trade. I think we’ll see bits and pieces leaked to the press over the coming days. If the markets think that new developments will drive Brexit talks forward, then the Pound could recover back to about €1.14. All in all though, I can’t see much change from the current levels unless we get significant developments. Friday is likely to be an important day for which direction the Pound takes in the coming weeks and months.
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