Brexit-week: Why Brexit isn’t the only reason for the pound’s uncertainty
It’s been an up and down week for the pound and for once, despite being Brexit-week, the UK’s departure from the EU wasn’t the primary cause.
The provisional manufacturing PMI came in close to the breakeven point at 49.8, more than two points higher on the month. The services PMI was up three points at 52.9, putting the composite reading at 52.4 which Markit described as “a decisive change of direction.” The pound made brief gains in anticipation of the results but by the end of the day, it was an average of 0.2 per cent lower against a basket of currencies. Early in the week, sterling benefited with other safe haven currencies due to concerns over the coronavirus impacting the global economy but by Tuesday it had fallen back. At the end of the week, the pound jumped ahead of the Bank of England’s (BoE) announcement regarding interest rates, prompting an investigation from the Financial Conduct Authority that the decision to keep rates on hold my have been leaked. The value of sterling increased just before the BoE Monetary Policy Committee made its announcement, rising from USD1.3023 to USD1.3089 against the US dollar and a similar increase against the euro and making smaller gains after the decision was announced.
In Europe, while the German manufacturing PMI came in within the contraction zone at 45.2, it was half a point above forecast and the services PMI came in at a five-month high of 54.2. Across the euro zone, the composite PMI inched into the growth zone at 50.9. Business confidence in Germany suggests a “more pessimistic outlook for the coming months” according to the ISO business climate index but there was better news on consumer confidence. Increases were seen in France, Germany and Italy, which also saw a rise in business confidence. Confidence measures were announced before the GDP figures, which saw a surprise contraction by 0.1 per cent quarter-on-quarter of French GDP in the fourth quarter, according to figures from INSEE. This was lower than the forecast 0.2 per cent and a fall from the third quarter results of 0.3 per cent growth. There was better news in Spain, which showed GDP was up 0.5 per cent quarter-on-quarter and 1.8 per cent year-on-year for Q4 and increases were also seen in Belgium and Austria. Investors will be looking for a continued positive trend to support any gains for the euro.
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Trevor Charnley: With an MSc in International Finance and Banking, I have more than ten years’ experience in foreign exchange and international payments. I currently lead a team of 20+ dealers who execute client transactions and provide moneycorp’s award-winning personal dealer service. I have extensive knowledge of the international payments process, from initial sign up to the final transaction. My experience and knowledge of FX markets ensures a quality international payment service that delivers outstanding value for moneycorp customers and ensures client retention. I also appear in many of moneycorp’s informative webinars.
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