Brexit defiance continues

6 January, 2017

Robin Haynes

The UK’s steady economic prosperity was given a boost yesterday by a survey (Markit Services PMI) showing that the services sector of the UK economy grew at its fastest pace for 17 months in December. The survey reading of 56.2 was better than expectations of 54.7, with anything above 50 indicating growth in the sector, which makes up ¾ of the UK economy.

Along with similar construction and manufacturing surveys earlier in the week, it looks like Q4 economic growth (GDP) is likely to be around 0.5%, similar to the first three quarters of 2016.

The Pound had been losing ground before the figures were released at 9.30, and immediately recovered against the Euro and US Dollar. However, lingering concerns about the UK’s access to the European single market in 2017 muted any gains, and the Pound now sits more-or-less where it started the year against the Euro, and around 1c higher against the US Dollar in the same time frame.

But for how long?
Brexit is likely to be back on the front pages again in the coming weeks, as the most senior UK official in Brussels, who retired last week, warned yesterday that access to the single market would not be “for sale” in negotiations. Chris Patten backed up the comments by Jonathan Faull, who worked in the European Commission for 38 years, saying that decisions will be made in Paris and Berlin, rather than London. As markets await the result of the High Court appeal on Article 50, it seems the Pound certainly has room to fall back significantly when negotiations finally get underway in the coming months.

Non-farms today
Today sees the most potentially volatile data release of the month for the US Dollar, when US non-farm payrolls are released at 1.30pm UK time. The main monthly measure of the American labour market is notoriously predictable and can produce swings in GBP-USD when it is announced. We also have Eurozone retail sales (10am) and Canadian unemployment (1.30pm) which could move exchange rates ahead of the first full week of the new year next week.

So while GBP-EUR sits 7c above its October post-referendum low, and GBP-USD 3c, these might not be the best rates we have ever seen for sending money abroad, but they are not the worst, and with the UK economy so dependent on EU trade, the coming months might be very unkind to sterling depending on how events unravel. Why not call us at Currency Index to discuss your own money transfer options?