Unexpected Pound Strength

3 May, 2019

Tom Arnold

Yesterday saw a number of factors coalesce to give the Pound a somewhat surprising boost up from its recent range-bound stasis.

Firstly, the PM fired her Defence Secretary; Gavin Williamson, over the recent Huawei/5G leak, which while not particularly of interest to the markets, was a sign that she is apparently strong in her leadership of the Tories, something recent Brexit problems had left many doubting – a strong PM, in control of her party, is much less likely to be ousted or encounter struggles down the line with Brexit negotiations still at the forefront of all things political.

Next up the Bank of England released their monthly policy statement; with no change to existing policy, which provided a slice of stability to a market in fear of ongoing Brexit uncertainty, and in the following press conference, the Bank’s governor explained that increasing inflation could lead to interest rate rises sooner than anticipated, and a slightly improved growth picture – 2019 growth revised up from 1.2% to 1.5% – which was all slightly more positive for the UK economy. The prospect of increasing interest rates is very currency-strengthening as it encourages investment, and so the Pound reacted to this mix of positive data and gained around half a cent against both the Euro and the Dollar.

Yesterday also saw local elections in the UK, with both of the major parties taking a hammering at the poles in early results, showing a backlash from the electorate with regard to Brexit policy. Neither the new Brexit party or Change UK were able to field councillors due to their recent inception, but many of the smaller parties took significant share from both the Conservatives and Labour. In interesting news, with much talk of the upcoming European elections and the Brexit party doing well there, it is actually the remain parties, which have seemingly won the day in the local elections with the Liberal Democrats taking a huge amount of additional seats and the leaver parties – Conservative and UKIP losing out.

Today is all about UK Services PMI this morning at 9.30am and US Non-Farm Payrolls this afternoon. The UK services sector is expected to have grown and as a result we could see a further Sterling boost first thing, and strong recent jobs numbers from the US could see an already strong Dollar make further ground – worth a mention that Wednesday’s FOMC minutes were more Hawkish than expected hence the Dollar’s recent clawbacks.

So, if you have Sterling in hand this is a good morning – yesterday’s gains and a bit more maybe this morning, give you a potentially great opportunity to secure your currency on a high. It’s likely the reality of the government having a terrible round of local elections will bite the Pound once it is fully known, so it may be best to consider locking in your rate and taking advantage of this upturn ASAP.