Cliff edge sell for Sterling over the last week
4 March, 2020
After a cliff edge sell for Sterling over the last week, exchange took a much needed pause during yesterday’s session with rates finishing the day much where they started off. The morning started with some UK PMI data to digest, which provided a welcome surprise in the Construction sector with a growth reading of 52.6 compared to forecasts of a contracting 48.8. This data follows another growth reading of 51.7 in the Manufacturing sector on Monday. Needless to say, that despite these positive green shoots of growth in the UK , the markets are seeing little reason to support the pound with any short term positivity being significantly overwhelmed by the mid-long term risks of a poor EU trade deal, or increasingly likely, no trade deal at all. The economic impact of a hard Brexit is forecasts between 4-7% of GDP, not dissimilar to that of the financial crash of 2008, and one that would almost certainly see the UK in a deep recession.
This is currently the focus of market traders, with a no deal Brexit currently at the highest likelihood seen since the referendum. Last summer when the market was last pricing in a potential no deal Brexit, rates were around 8% lower than they are currently, leaving plenty of room for a continued drop if progress is not made with the EU in the coming months.
Another major currency that is coming under brief pressure in the US Dollar, which has been o the back foot for the last week as expectations increase that the Fed are set to cut interest rates again this month, by as much 50 basis points. It is however relatively unlikely that we will see a continued weakening trend in the US Dollar given its safe haven status. With global growth slowing, and huge uncertainty over the larger impact of the spreading coronavirus, it is likely that the US Dollar will fight off any weakness from monetary policy and maintain is safe haven status with risk levels increasing elsewhere.
This morning we have the final PMI sector reading for UK Services which is always the most important. It is however very probably that data of this nature will once again fade into the background whilst the more pressing Brexit concerns take a hold of Sterling markets once again.
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