Another disappointing week for the Pound as the negative mood for the UK continues. Economic data provided some positive insight following Thursday’s GDP figures and Wednesday’s mortgage approvals, however consumer confidence appears to have taken a dive in October, no doubt a result of the “Marmigate” hype and warnings regarding a cheaper Pound.
The Pound continues to fight against the waves but just when things begin to settle, Sterling almost arbitrarily looses momentum with what seems very little reason. Goldman Sachs considers Sterling 10% overvalued which might explain why Sterling continues its downward trend. With the UK set for difficult negotiations with the EU, one only needs to look at the complexities of the CETA trade deal to understand the ride the UK are in for.
Manufacturing and Construction PMI
There does remain some glimmer of hope for the UK economy. As some MPC’s have pointed out a weaker Sterling is helping to absorb some of the shock of Brexit. Construction and manufacturing PMI’s have swayed to the positive side since the vote which could present further opportunities for the Pound next week.
Bank of England interest rate decision
With inflation set to improve as the price of goods rise the Bank of England may decide to keep interest rates on hold for the time being. But expect further volatility with the build up to the event, as witnessed before and during Mark Carney’s speech last week. Markets should prepare themselves for further losses in the early hours of Thursday’s trading session.
US FED Interest rate decision
The US economy has been on the road to recovery this year as employment nears max capacity and inflation edges closer to its 2% target. What can be said for the FED interest rate decision on Wednesday? Yellen may likely decide to wait until after the political events the following week which gives FOMC members one last chance to review the Non-farm payrolls and unemployment rates on Friday. If data bears positive markets could expect the green light for a hike in December.
Pound to US Dollar exchange rates could hit 1.20 in the coming weeks as markets gear up for an interest rate hike this side of Christmas.
With Article 50 now in the pipeline markets are becoming increasingly nervous as the deadline approaches which is why further Sterling losses could present themselves, even if UK economic data continues to outperform expectations. Those looking to buy foreign currency with Sterling may want to do so sooner rather than later.