Pound seesaws as Brexit hopes clash with economic fears

Despite a complete lack of UK data, the pound was on volatile form on Friday.

The pound is mostly registering gains today, with GBP/EUR currently trading up 0.3% at €1.1271, although GBP/USD is stuck at US$1.3287. GBP/AUD is currently up 0.3% to A$1.6868, while GBP/NZD remains around opening levels at NZ$1.8508, as does GBP/CAD at C$1.6574.

An empty data calendar today is likely to leave the pound vulnerable to political developments, as well as the latest news from overseas.

What’s been happening?

The pound was kept volatile at the end of last week by reports covering both the economic and political spheres. Sterling started the day on Friday rebounding from Thursday’s weakness thanks to a report in a German newspaper that suggested the EU was preparing to offer the UK a transitional deal during the Brexit negotiations.

This was in fact not new information in the slightest, yet investors still rushed back into Sterling. Markets handily ignored the large caveat that the divorce bill needs to be settled before talks of the transition could begin - ironically the very thing that sunk the pound on Thursday.

Reports later in the day clipped Sterling’s wings, however. Particularly damaging was the latest Quarterly Economic Survey from the British Chambers of Commerce (BCC), which found pay growth and investment levels remained largely flat.

This undermined hopes that the Bank of England (BoE) was set to raise interest rates soon, as Threadneedle Street has forecast for pay and investment to rise sharply next year.

The euro remained soft for much of the day as markets awaited the key US economic data. In the end, the US dollar fell after disappointing inflation figures. Consumer prices disappointed forecasts by 10 basis points in all fields, as did advance retail sales figures for September.

This has seen bets of an interest rate hike from Federal Reserve in December retreat to 81.7%.

What's coming up?

There is little on the economic data calendar today to cause movement for the pound or US dollar. The euro is likely to respond to August trade balance figures for the Eurozone, which are expected to show a strong rise on a seasonally adjusted basis.

Thanks to having little else on offer, the US dollar may find itself reacting to October’s low impact manufacturing index.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.