The Pound reversed earlier losses this morning following stronger-than-expected industrial production figures and data showing our trade deficit has narrowed.
UK leading indicator data releases, which are used to predict changes in the economy, have disappointed slightly over the past 10-days making investors nervous that the impact of Brexit is finally becoming evident. This morning’s data, however, indicates that the economy is still behaving robustly in spite of the UK’s vote to leave the EU last June.
Many traders are still reluctant to heavily buy the Pound, however, due to uncertainties that lie ahead. The Bank of England are also remaining on the fence, despite rising inflation levels, which has reduced the odds of a nearer interest rate hike and therefore the appeal of Sterling. If inflation continues to rise and growth ticks higher, however, this stance could quickly change and some policymakers (such as Kristin Forbes) are already beginning to become quite vocal about this.
In other news, the USD has been supported as President Trump signalled that a “phenomenal” tax plan is to be announced shortly. Investors feel that tax cuts could really help stimulate the US economy and consequently make the dollar more attractive. This effect, however, seems to contradict Trump’s aim of trying to reduce imports and increasing exports, as a stronger dollar will clearly do the opposite. Watch this space to see how he deals with this issue.