Pound bolstered by Bank of England
Today's news headlines:
- 'Bank of England sees weakest outlook for the UK since 2009 amid Brexit uncertainty’. The UK’s central bank has downgraded its growth forecast for 2019 to 1.2%, down from November’s prediction of 1.7% although downside for Sterling has so far proved to be short-lived. (CNBC)
- 'May and EU agree to reopen talks to break Brexit impasse’. Meaningful progress was lacking from yesterday's talks, and EU suggestions that the UK should sign up to a permanent customs union have fallen flat, but there is a commitment that talks will resume before the end of the month. (Financial Times)
- 'ECB sees slower growth momentum ahead’. Lacklustre economic activity both within the Eurozone and further afield was flagged in yesterday’s Eurozone economic bulletin. Although, there’s a degree of optimism that the tempo will improve in due course. (Reuters)
Bank of England
Yesterday, Bank of England (BoE) Chief Mark Carney provided a comprehensive update for the markets as the first monetary policy statement and quarterly Inflation Report of the year were released. Sterling sold off in anticipation of the news, which warned of recession risks in the event of a no-deal Brexit and saw the prospect of a rate hike this year diminish slightly. However, concerns that inflation would persist above target, plus an ongoing belief in the market that a Brexit solution can be found, proved sufficient to eclipse pre-statement losses. Interest rate hikes may remain thin on the ground in the years ahead, but that in turn means the impact of each anticipated move on the Pound could be more significant.
US/China trade war
Despite reports of progress being made, Donald Trump won’t meet the Chinese President before the deadline for increasing tariffs next month. The reason is preparation for the next summit with North Korea, and no clarity has been forthcoming as to whether the tariff deadline will be pushed back to account for this. Any indication that the US Treasury won’t yield could see risk sentiment diminished, something which would likely keep pushing the US Dollar higher.
The Pound swung by more than a cent around the Bank of England release yesterday, before settling back close to levels seen earlier in the week. Brexit clarity remains key to further progress here.
The Euro continues to work its way lower against the US Dollar, with the pair now having fallen every day this week. Yesterday’s downbeat Eurozone growth forecasts were the latest fundamental factor to take a toll on the pair.
The Pound held, and even gained some ground, against the Euro as the market digested Mark Carney’s words yesterday. With Brexit progress set to play a significant role in the outlook for Sterling, developments in the rhetoric between London and Brussels will be instrumental in where the cross goes next.