The first month of 2020 ended with the pound on the front foot following the Bank of England’s decision to keep interest rates on hold and the UK officially ended 47 years of EU membership.
After an extended period where deal or no deal has been the main driver of sterling volatility January saw a return of fundamental data release and interest rate expectations as a bellwether for the likely future direction of GBP.
A succession of poor economic indicators released throughout the month pointed to an increased probability of a rate cut with GDP, inflation, retail sales and manufacturing numbers all disappointing. This followed with comments from numerous MPC members intimating they would vote to lower interest rates if the economic picture did not improve. Better than expected employment and services figures along with more positive business sentiment following the December election resulted in a 7-2 vote to keep rates as they are.
In Mark Carneys last monetary policy statement as governor the BOE downgraded their growth forecasts for 2020 & 2021 to 0.4 - 1.4% respectively citing the impact of Brexit uncertainty and a slowdown in global growth reducing the demand for U.K. goods sold overseas. These latest forecasts are made with the assumption that a free trade agreement with the EU will be agreed by year end.
The pound is currently trading around 1.1850 against the euro and 1.3120 against the dollar. You could argue still undervalued since the 2016 referendum the challenge will be at some point this year for sterling to break resistance levels of 1.20 and 1.35. This might be tough to achieve while there is still uncertainty around our future trading relationship with the EU. Trade talks are due to begin in March with Boris Johnson set to give a speech later today outlining his vision for the UK.
Today also sees the release of manufacturing data from the U.K, EU and US.
The figures are based on the live mid-market rate, correct as of 08:30 GMT on 03/02/2020, and are provided for indicative purposes only. Live mid-market rates are not available to consumers and are for informational purposes only. The rates we quote for money transfer can be selected via the page on our website ‘Live Money Transfer rates’.
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