Calm Sterling? – 27th July 2016

Calm Sterling?

“Sterling volatility caused by the Brexit vote” (or words that affect) have been published prolifically in the last three weeks but is actually accurate? True, the value of Sterling plummeted as the Brexit vote was announced but in the last three weeks, there hasn’t been volatility so much but more a steady recovery for Sterling as it has made a net gain of 2.4%. Yesterday Sterling went quietly about it’s business again, adding 0.3% against the other dozen most actively-traded currencies.

There were no economic data to affect it as the only UK statistic was a slight monthly fall, from 41,800 to 40,100 in mortgage approvals which was in line with forecast. A stronger-than-expected US consumer confidence reading was briefly positive for the US Dollar, as was a 3.5% monthly increase in US new home sales, but they had no lasting effect on Sterling v US Dollar.

This morning the Office for National Statistics will reveal its first stab at UK gross domestic product in the second quarter of 2016. The consensus among analysts is that GDP will have expanded by 0.5% in Q2, a little more than the 0.4% growth seen in Q1. The figures will fail to take into account the effect of the EU referendum, which took place just a week before the end of the quarter. Given the fairly broad assumption that the Brexit decision will dampen the economy during the rest of the year (though nobody has any clear idea of by how much), the Q2 figure is, to an extent, irrelevant. That is not to say it could not affect Sterling.

The Federal Reserve policy statement comes out this evening with expectations for no change.