Pound falls slightly on signs of slowing economy

As Theresa May enters crunch talks with Brussels, the Pound falls and has had a rather poor start to the week.  For a change it’s economic data releases that have moved the Pound rather than the on-going Brexit saga.

Of late, fundamental economic data has been largely ignored by the markets, as investors instead try to second guess what will happen with Brexit. However following the recent commons voting, it’s unlikely that there will be any progress with Brexit until around the 14th of February. In the absence of Brexit related news to chew on, focus has instead turned to economic data releases, which is what typically used to drive exchange rates before Brexit took over!

Poor UK data dents demand for Sterling

Yesterday saw the release of UK Construction data, which came in below forecast. This morning, we say Services PMI data that also came in softer than expected. Both these releases are consistent with a stagnating economy. Despite the poor data causing a slightly dip in the value of Sterling, the Pound remains at €1.14 vs the Euro, and $1.30 vs the US Dollar. The Pound then is still significantly higher than this time a month ago.

Global economy showing signs of downturn

While any bad economic news is quickly blamed on Brexit in the press, the reality is slightly more complex. The global economy is slowing, as clear by the fact Germany and Italy, two of the EU’s largest economies, are also being threatened with a technical recession. The news that Nissan is pulling out of a deal to make a new car in the UK is also being blamed on Brexit. The reality is that slowing car sales in China have caused a slowdown in the industry. So while there is negative news out there, the reason the Pound hasn’t fallen too far is due to the fact markets realise the global economy is slowing, not just the UK.

What could affect GBP exchange rates this week?

Later this week, we have the latest ‘Super Thursday’ releases from the Bank of England. These could cause some volatility for Sterling. We see the quarterly inflation report, Interest Rate decision, the minutes to their discussion on rates and stimulus, and a Q&A with the governor Mark Carney. The markets are rather used to Carney’s negativity about the UK economy, so the inflation numbers and minutes will be more closely watched for any hints to when and if interest rates will go up again this year.

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