Sterling has been supported over the last week despite a series of weaker economic data releases. Last week’s Purchasing Managers Index (PMI) data from the construction and services sectors in particular highlighted that the “Beast from the East” certainly saw performance in these sectors fall as a result of the cold weather blast. The weaker data, though which did fall by someway, has failed to give major concern for the markets, which have largely shrugged them off.
The Brexit negotiations which saw the second round of discussions covering the transitional arrangements concluded have also helped lend support to the Pound. For the time being the mood on Brexit is looking more optimistic with the hope of a future trade deal between Britain and the EU. However there is still a long way to go in this negotiation and the third round of talks which will cover such topics as a future trade agreement are likely to be the most difficult to achieve a suitable solution.
There are two main issues that Britain faces and unless resolved could end up with the “no deal” scenario which all sides are trying to avoid. The Irish border is perhaps the most talked about but still remains a major obstacle to any free trade agreement. The other issue is whether financial services can be included in any future deal. The services sector comprises almost 80% of the British economy and it is crucial that it is included. If it is not then there won’t be a trade deal and this is the risk that remains, which is likely to keep the pressure on the price of Sterling.
Now that politicians have returned from the Easter recess it will only be a matter of time before Brexit is making the headlines and causing more volatility for Sterling exchange rates
Bank of England Governor Mark Carney will be making a speech tomorrow and his choice of words can always have a direct impact on the price of Sterling. The markets are already gearing up for an interest rate increase as soon as May and this is helping support the Pound. Any strong comments should see further volatility ahead of the next interest rate decision to be held next month.