Sterling continues to trade sideways against most majors
12 February, 2020
Yesterday’s trading session kicked off with some fresh UK data to digest. This came in the form of December’s growth figures in the Industrial and Manufacturing sectors, along with revised GDP for Q4 on 2019. The markets are taking a keen interest in this data currently due to the potential for a rate cut from the Bank of England if figures do not improve in the coming months. Industrial Production confirmed a yearly contraction of -1.8%, with Manufacturing at -2.5%, however both sectors saw small growth in December of 0.1% and 0.3% respectively. Overall GBP for Q4 is now expected at zero, with the monthly growths both missing expectations.
This data had little impact of Sterling as it continues to trade sideways against most majors. Traders are eagerly awaiting bigger developments in key areas such as monetary policy from the BoE and Brexit trade talks with the EU. Both of these factors pose significant downside risk to the pound over the coming months as so this period of stability could in fact be offering a welcome opportunity for those still needing to secure their currency, particularly if buying property in Europe this year.
GBP/EUR rates are just 1% away from the best buying levels seen since the referendum in 2016, with the peak buying rates only seen 3 times in as many years. EU trade talks are set to start next month with both sides now very accepting of the potential for a no deal exit on 31st December. Crucially the EU understandably wish to address some of the biggest issues as early as possible, so as not to waste the year ahead only to fall at the final hurdle. This will include a viable solution to the Irish (sea) border, fishing quotes and citizen’s rights to name a few.
We can therefore expect media headlines on these difficult negotiations to be driving the market as early as April, with the markets ready to de-risk if a no deal looks increasingly likely, much like we saw last summer when GBP/EUR traded at 1.07 and GBP/USD hit 40 year lows of 1.20. The main difference this year is that following some post-election amendments from the new majority government, parliament no longer have any powers to intervene and block a no deal Brexit, and the deadline of December 31st is now written into law.
In other Brexitland news, Boris confirms he will pursue a £100bn project to build HS2 over the next 20 years, the Home Office deport a flight of 50 people to Jamaica (before a court order calls 24 of them off the plane for illegal deportation), Michael Gove finally admits that there will be border checks and red tape on imports/exports from next year, Dominic Cummings insists that PJ Masks are the answers to our problems, and finally Boris is planning a 20 mile bridge from Scotland to Ireland for another £20bn.
When people advise him to re-unite a divided country and start to build bridges again, I am not sure this exactly what they meant.
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