Mixed day for the pound

12 January, 2017

Rob Bastin

Yesterday provided a much busier day on the markets with both data releases and key speeches of interest. The morning kicked off with November’s Manufacturing and Industrial Production figures for the UK that had previously shown a sharp contraction. Markets has anticipated a return to growth with these figures which in fact over delivered with actual results far exceeding predictions at 2.1% growth for Industrial production and 1.3% growth for Manufacturing. Economists have largely attributed this increase to the weaker pound which is now starting to have the expected positive effect on UK exports. Despite this upbeat figures the UK’s Trade balance figures had still deteriorated in November with a trade deficit estimated at a round £4.2bn, which represents a £3.3bn surge in imports further widening the gap from the previous month. On reflecting on this data the markets reacted negatively towards Sterling, with greater concern over the widening trade deficit than any positivity from the increase in exports, given that these figures are somewhat aided by the current weak pound.

The weak pound was matched by a weak Euro yesterday so GBP/EUR rates remained fairly stable near to 2 month lows, but with the US Dollar still in the driving seat cable plummeted to a new 31 year low by lunch time. This move came ahead of 2 speeches of interest that saw further volatility during the afternoon session. First up was the Bank of England governor Mark Carney in front of the Treasury select, where a number of questions were put to him regarding the Bank’s post Brexit forecasts. Mark Carney defended their gloomy forecasts saying that things could have been a lot worse had the Bank not have stepped in with aggressive stimulus back in August. Carney went on to say that the ‘scale of immediate risks have gone down’ in relation to Brexit, however the Bank sees greater risks ahead to financial stability, with access to markets highlighted as a key area the UK should focus on, somewhat of a contrast to the tone of Theresa mays comments last weekend.

Donald trump rounded off the afternoon with his speech where he faced various questions over recent allegations but focussed on the handing over of his business empire to his sons. Whilst there wasn’t much to be perceived as particularly negative, the greenback dropped around 1 cent against the Euro and Pound during his speech, retracting much of its earlier gains. Could this be a sign of things to come with Trump at the helm? Fear and uncertainty are very likely to be more evident going forward than has been seen during the ‘Trump really’ post election.