FX market update | May 2018 | Pound under pressure

What goes up must come down as the saying goes. Six weeks of sustained gains by Sterling against the Dollar during March and April quickly came to a halt in the second half of April and losses continued into the first week of May.

Recent Highs and Lows:

28th February                    1.3761

16th April                            1.4338

4th May                               1.3531

As the table above shows there was a 6 cent rally giving Dollar buys and importers a welcome spring boost. This has been reversed and then some back down 8 cents. Two large swings in short space of time.

What is behind this?

Early in May very weak UK 1st Quarter GDP releases showed UK growth at a meagre 0.1%. While there is some blame attached to the weather – The Beast from the East, versions 1 and 2 – the office of National Statistics has said this figure would have been very weak regardless.

Plus, as has been widely reported; the BOE aren’t looking to raise rates to stop the UK economy overheating, or even in order to stifle inflation, but to ‘normalise’ the UK rate situation. However, the latest economic release – lower inflation, poor retail sales and now anaemic growth – have most likely pushed back any rate hike till after summer at the earliest. So the gains that Sterling had made on the back of anticipated interest raise have retreated as that particular balloon deflates.

The financial markets have gone from writing in over 90% certainty of a May hike, with the corresponding long positions in the pound, to speculation of no rate hike this year at all such is the retreat. So the pound sold off, weakening against all its major trading partners, but especially the USD. UK Manufacturing Purchasing Managers Index also come in lower than expected and shows UK factory output at 17 month lows, keeping the pound lower again.

The USD has been resurgent in recent days, and decisions by President Trump to delay imposing tariffs on steel and aluminium imports has given the dollar an additional boost. Also the decision to pull out of the Iran Nuclear Deal also, if anything, firmed the Greenback up as well.

Recent UK local elections revealed not very much, the resignation of Amber Rudd from Home Secretary weakens the Cabinet and drops in even more political uncertainty to add to the economic woes and it is becoming a bit of a perfect storm for the pound. Furthermore high level Brexit negotiations keep it under a close watch.

The Euro however has stayed static against the Pound and retreated against the resurgent Dollar. Recent German inflation, which, like the UK’s last week, came in a little lower than expected and gave the pound a slight boost against the single currency.

9th May (Close)

GBP USD                            1.3550

GBP EUR                             1.1434

By | 2018-05-11T11:23:36+00:00 May 10th, 2017|Financial|0 Comments

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