Mixed Day for The Pound

29 November, 2018

Simon Eastman

Initially sterling seemed to be on the up yesterday as we saw the pound move up steadily across the board, seemingly peaking at lunchtime. As US markets woke, we saw sideways trading before a correction in the afternoon, but with a raft of lower than expected US data releases it seems it was more sentiment towards the pound than anything else.

The governments UK Brexit department released its findings from research into the impact the current Brexit deal proposed by Theresa May would have and it want happy reading. They predict UK growth could shrink by 3.9 percent compared to staying inside the EU but did also note, a “no-deal” Brexit could leave us some 9.3 percent worse off. In contrast to these findings, Mrs May stated “Our deal is the best deal available for jobs and our economy, that allows us to honour the referendum and realise the opportunities of Brexit.”

Despite the EU member states taking just 38 minutes to pass the deal through, it has been met with opposition at every turn. The 3 main causes for concern are

  1. The Irish border – resolved using the unpopular backstop, giving Northern Ireland special status, separating it from the rest of the UK in that regard. The DUP are not happy about this and considering Theresa Mays government relies on DUP support to hold the majority within parliament, this could bode badly for May come the commons vote next month.
  2. Gibraltar – although other member states found Spain’s concerns unnecessary and became “inpatient” with them, the UK still put through last minute concessions to the deal regards Gibraltar. This in hand, angered some of her supporters and will again cause issues come the commons vote.
  3. No concessions – EU commissioner Juncker says the deal is as good as it gets and urged UK parliament to vote it through. Many feel this is not a good deal at all and are likely to speak with their votes come 11th December. With no movement on the deal from the EU’s side being made clear, its hard to see where we go from there, with a no deal Brexit becoming the only clear way forward.

It seems the above findings by the Brexit committee where enough to put investors off again and saw sterling’s gains reverse.

Added to this, Mark Carney said in a press conference that the pound would crash, GDP could fall by 8 percent, inflation would soar and interest rates would have to rise, should we leave the EU with a no deal scenario. Adding house prices could slump by up to 30 percent. These comments saw sterling crash as trade came to a close, while the US dollar also slumped half a cent as the Fed started speaking at 5pm, after Fed chair Powell commented US policy  remained just “below neutral” hinting at a pause in their current rate hike cycle.

Today is a busy day again for ecostats from around the globe with Swiss GDP coming first thing. German unemployment follows, ahead of UK mortgage data at 9.30am. EU business climate and financial review round off the morning. At lunch German inflation figures come out just ahead of US inflation, new home sales and the FOMC minutes at 7pm, following their most recent interest rate meeting.

Plenty to go on, as well as general sentiment swaying around the Brexit deal so likely to see more volatile trading today. With that in mind, make sure to give one of the team a call to discuss your upcoming requirements.