Those watching GBP exchange rates will be aware that the Pound received a boost recently after it emerged that the UK and EU’s chief Brexit negotiators have come to an agreement regarding the Brexit transitional agreement.
The Pound to Euro rate hit a 9-month high in the wake of the news breaking, making the conversion of Pounds into Euros a more attractive proposition.
Interestingly there has been a batch of weak economic data for the UK this week and this usually would have resulted in a weaker Pound, and although it has softened slightly the Pound has managed to hold onto the recent gains more or less in full.
Manufacturing, Construction and Services PMI data have all disappointed for the UK this week, either dropping from the previous month’s figures or coming out below the expectations of the market.
The most import data release was this morning, when the Services PMI figure was released. The services sector covers over two thirds of the UK economy so the markets usually watch the figure closely, especially as PMI data is indicative of future performance.
The Services PMI figure actually feel to its lowest level since the Brexit vote, which may grab some headlines due to the significant drop. One argument for the markets remaining relatively unchanged can be put down to the heavy snow impacting economic output. At the same time I think sentiment has improved surrounding the UK now that both the Brexit transitional agreement, along with expected interest rate hikes from the Bank of England are common knowledge.
Next month the Bank of England is likely to raise the UK interest rates to 0.75% which would be the highest rate since the UK exited the recession.
There is no further economic data due out of the UK this week, so I expect to see GBP exchange rates continue to be driven by sentiment.