The Pound has had a mixed week against its counterparts, with Sterling remaining under pressure against most major currencies, especially after yesterday’s confusing data releases.
Yesterday’s trade balance data was below analysts expectations, however better than expected industrial production figures helped to bring the Pound to an equilibrium once more. Whilst the trade deficit was Sterling negative, the industrial figures released meant that the year on year figure moved back into positive territory and provided investors with some hope for industry after the Brexit decision.
Despite this welcome news yesterday, the Pound still remains under pressure. The economic outlook for the UK remains bleak, following last week’s announcement from the Bank of England that 6 members of its voting committee opted to keep interest rates at record lows. I feel that this news has meant that GBP/EUR has entered into a new range which means that a break through 1.11 is off the cards for now.
The US Dollar however is a different story. Politics and the rising odds of conflict between the US and North Korea mean that investors will move their funds away from the Dollar to avoid losses. The Japanese Yen and Swiss Franc both improved against the USD from the announcement that North Korea would be met with ‘fire and fury’ following recent Nuclear tests if this continued. The Dollar may be able to make back some of its lost ground this afternoon if the inflation data shows a positive lift. Inflation data has been subdued in the US however a small jump is anticipated that could help the Dollar.
Next week is a key week for Sterling. A bag of economic data is released which could, if positive help elevate some of the pressure from off GBP. UK inflation data is the main event, following last month’s slump investors will be looking to see if this was temporary or if the full effect of the Pound’s decrease following Brexit has been passed on to investors. If the inflation figures show a lift near the 3% level then I would expect pressure to be put back on the Bank of England to look at raising interest rates. If the data is negative, then Sterling could take a further hit, pushing rates into 1.08 – 1.09 territory. It is worth nothing that Morgan Stanley has recently downgraded the GBP/EUR outlook for the first quarter of 2018 to reach parity.