Pound recovers after decent job figures raise some doubt on BoE cut

The Pound has made back some ground this morning after the release of the latest UK job/wages figures.

The data showed that job growth was the strongest in nearly a year with employment rising by 208K versus forecasts of around 110K. Furthermore, wage numbers beat expectations at 3.2% annually and the unemployment rate remained at 3.8% in November.

Signs of weakness in the job market led to a couple of BoE policymakers voting for a rate cut last year and other policymakers have recently indicated that further stimulus might be needed. Last week’s inflation figures disappointed and this pushed the odds of a 30th January rate cut (0.25%) to around 70% .

Today’s data, however, has helped weaken the case for a BoE interest rate cut which has led to increased demand for Sterling this morning. This data set was taken before Boris’s emphatic election victory on December 12th, which some feel has improved consumer and business confidence, so it will be interesting to see how future data comes in. Traders (and the BoE) will be eyeing up this Friday’s PMI figures (9.30am) for the first post-election key data releases. A strong showing here would really make them question whether a January rate cut is the right move. Watch this space.

As a result, the Pound has clawed back around a cent against the USD and 0.75-cent against the Euro.

Pound weakens on dovish BoE and weak growth data

The Pound has lost ground this morning following weak UK growth figures and negative Bank of England policymaker comments over the weekend.

The NIESR GDP figures have estimated growth over the last 3-mths as -0.3% which is a notable miss and suggests the UK economy did mildly contract in the last quarter of 2019. Although these figures largely encompass the pre-election sentiment, it’s still not great reading for the BoE and the Pound.

Last week, Mark Carney warned that the BoE would take “prompt” action to tackle any economic downturn and had plenty of headroom and tools available to do this (i.e. interest rate cuts/QE). Over the weekend, another BoE policymaker also hinted at a possible rate cut. Gertjan Vlieghe stated that he will consider voting for a rate cut at their next meeting but will be closely monitoring how the economy has performed since the December election before making any decisions.

The next BoE rate-setting meeting isn’t until the end of the month (30tH Jan). The UK data releases between now and then will therefore take more significance compared to previous months, as Brexit has massively overshadowed these releases of late. Two of the key pieces of data will be this Wednesday’s inflation numbers and then employment/wage data out on Tuesday 21st.

As a result, the Pound has given back over 2-cents against the USD from last week’s high and now trades at a 2.5-week low. The GBP/EUR has lost around 1% from last week’s high and trades at the lowest levels since Boxing day.

Happy New Year!

We wish you all a very healthy and prosperous 2020!

Last year was very unsettled in the currency markets and this year promises to be similar. 

Sterling was sold off into the Christmas break as traders took profits on the previous General Election bounce. It staged a recovery into the new year, however, as investors reversed these profit-taking trades and recalibrated their positions with the knowledge that a hard Brexit will be avoided at the end of this month.

Brexit is likely to dominate volatility in the Pound again this year. Traders will be closely watching how trade negotiations are going over the coming months to ascertain whether or not a full agreement can be reached before the end of the transition period (31st Dec). Boris has firmed up this strict deadline by putting it into law that no extensions will be made. If no extensions are requested before July or if no agreements can be made by the end of the year, then the UK risks leaving on WTO terms (aka hard Brexit). If the risks of a cliff-edge Brexit re-appear then Sterling will come under serious pressure again. If negotiations progress well, however, then we can expect good ground to be made by the Pound. Either way, it’s likely to remain extremely volatile as the news flows back and forth.

In other news, the Euro had a relatively strong finish to the year. It looks likely the ECB will hold fire on any extra monetary stimulus for the foreseeable, as European data should show signs of improvement this year. Additionally, further support has come as the first phase of a US-China trade resolution looks to be nearly sorted which is a good sign for a full agreement being on the cards in the coming months. This helps boost general risk appetite and global growth which would bode well for both the Euro and the Pound, but likely weaken the more traditional safe-haven currencies (e.g. USD/Yen/CHF).   

Finally, alongside the key US-China trade dispute, US dollar traders will be closely tracking developments across the Pond as Mr Trump tries to win another term as President on 3rd November. Since his inauguration, Trump’s protectionist policies have had major impacts on the global economy and currency markets.

As a result, the Pound trades around the highest levels it’s been for the past couple of weeks but still off its election highs. The EUR/USD hit its highest levels since August last year having gained 2-cents last month.

Pound gives back election gains as Boris maintains strong Brexit stance

The Pound has almost given up all of its election exit poll gains as Boris looks set to take a hard line on the UK Brexit transition period.

Mr Johnson is expected to use his new majority to pass a bill which forbids any extensions to the planned transition period beyond the end of next year. This would leave trade negotiators with only 11-months to strike a new trade deal or risk the UK moving into WTO terms with the EU (aka a hard Brexit).

This has surprised many in the market as some traders felt that his new large majority might have meant that he takes a more softened stance to the negotiations. Many analysts feel that 11-months is not enough time to arrange such a deal and therefore uncertainty has increased and the Pound has suffered a reality check after such a short-lived reprieve.

That said, it’s possibly too early to get overly pessimistic as the trade negotiations are yet to properly kick off. Furthermore, it can be argued that the overall structure of a deal has been laid out and a lot of things will remain the same after the split. However, with the pound failing to break the higher technical levels after the election swing, it seems that any further gains will now be constrained and the election highs may represent the top of the new range in the short-term. Brexit headlines, along with some technical moves, will likely be the main driving forces for the Pound in the near-term.   

As a result, the Pound is down over 2-cents against both the Euro and the USD since Friday. Eyes will now move over to Thursday’s Bank of England interest rate meeting to see if any of these political developments have changed any of the policymakers positions.

Sterling soars after Tory landslide

The Conservatives have won a massive majority in yesterday’s general election which has moved the markets. 

The Pound soared higher by around 3% just after the release of the exit polls (around 10pm) which indicated a landslide Tory victory.  As the results came in overnight they showed the exit poll was accurate and sterling largely held onto these gains. The Conservatives have won a majority of 80 seats.

The result means that Boris can now ratify his Brexit withdrawal deal and the UK can officially leave the EU on the 31st January 2020. We’ll then enter a transition period during which a future trade deal will be negotiated with the EU. Boris pledged to have this all agreed before the end of next year which could be a big challenge. Although this period could technically be extended to 2022, it would go against what Boris had previously promised. However, the larger majority means that Boris now has the ability to overrule the more hard-line Brexiteers (e.g. ERG) so we might not see as much of a hard Brexit. 

All of this is good news for the Pound and the fact it remained relatively stable around the peaks of the initial move shows that there is some good underlying support for sterling. As a result, Sterling had one of the biggest one-day gains of the last two decades. It hit the highest levels against the USD in 19-mths and the highest levels against the Euro since the Brexit referendum (June 2016). 

Labour performed terribly and they lost many key seats if there’s and the ‘red wall’ was taken down brick by brick. Corbyn has said he will relinquish his leadership of the Labour Party after a period of reflection. There was a very strong showing from the nationalist parties form other regions of the U.K.  In particular, the SNP had huge wins and they will now be pushing for another Scottish referendum over the next few weeks (with plan to hold it next year). Boris has ruled this out but there will be immense pressure on this and it’s something to bear in mind for the Pound later down the line. Johnson will therefore have his work cut out to strike these new trade deals, keep London as the top financial capital and keep the UK United. 

So, Sterling is in good stead at the moment but will need to break above some key resistance levels if it’s to push on from here in the short-term. Looking further ahead, though, the outlook becomes more complicated. This election result should boost the fundamentals as business confidence and investment are likely to increase, however, the stronger Pound may bring inflation down which may mean the Bank of England stay on hold for longer. Mix that with politics (trade negotiations and risks to union) and forecasting become difficult.

Polls show gap closing on Boris

The Pound has moved off its highs as the latest key opinion poll has shown the Conservative’s lead narrowing.

YouGov’s second MRP survey predicts that the Tories lead has moved down to 28 versus 68 two week ago. So, although it still looks like a healthy lead, the odds of a hung parliament have increased and therefore traders have become more cautious over Sterling.

Pre-election opinion polls have to be taken with a pinch of salt and they often (famously) miss the mark. So, the markets are gearing up for a volatile couple of days as this election is still not a done deal and the result will have such significance moving forward.

A Tory majority is widely expected to boost the Pound as it creates more certainty over Brexit and their policies are more market friendly. A Labour majority is very unlikely but if it occurred the Pound would be expected to tumble because of their perceived less market-friendly policies (e.g. nationalisation, tax/spending/borrowing hikes). A labour-led coalition (with SNP/Lib Dems) is also expected to weaken the Pound in the short-term but not as much as Labour’s policies would be watered down. In this scenario, it’s also likely that the Pound would later rebound as a second Brexit referendum would likely be called.

With voting set to start within less than 24-hrs, the market will take more interest in the real sentiment on ground tomorrow. It’s likely they’ll be some large swings as the exit polls come out and then as the results trickle in overnight (we expect most of the volatility to occur between 1am and 6am Friday). Traders will be particularly focused on some of the key swing seats and whether the Tories can break Labour’s ‘red wall’ (in the north and Midlands). Watch this space.