The Pound remains supported, and is holding up surprisingly well, given the political uncertainty the UK currently faces. The speaker John Bercow yesterday said that the PM could not bring her deal back for a third vote as has been expected, unless it’s substantially different. Initially Sterling dipped a little on the news but quickly found its feet and this morning has recovered those losses and is now largely unchanged from yesterday’s close.
I would have expected more weakness in the Pound. Bercow’s move only increases uncertainty, with only 10 days to go before the UK officially leaves the EU. Our view is that it is still likely that May’s deal will get through next week and an extension to Article 50 is likely to get the deal through.
Of course there still remains the option that the UK could crash out without a Deal, but that is quite unlikely in my view. The other options are a lengthy delay to the whole process. This would not be helpful as any extension would only increase the uncertainty. Personally I am hopeful a deal can still be agreed, allowing all parties to move on to Trade talks.
What else has been moving the Pound?
Away from Brexit, the UK economy continues to show resilience to the pressures and uncertainty of Brexit. Unemployment figures this morning showed a drop to 3.9%, better than had been expected. Employment levels are now at their highest in almost 50 years. Average earnings were also higher than forecast, coming in at 3.4%.
Brexit developments will of course remain the main driver for the Pound, but there are some other eco-stats to watch out for in the coming days. Tomorrow we will see the latest UK Retail Sales and inflation figures. Retail Sales are important as they are seen as a good barometer of how the economy is faring as a whole. We expect a monthly rise of +0.7%.
Thursday will see the latest Bank of England decision on interest rates, and further Retail Sales numbers. I don’t expect the BoE to move rates from their 0.75%. However, anything in the minutes or the accompanying statement could cause some GBP volatility.
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