Sterling on the Ropes – 19th September 2016

Sterling on the Ropes

Sterling remained on the ropes on Friday after taking a number of hits on Thursday, racking up a cumulative 1.7% loss over the two days against the other dozen most actively-traded currencies. The cause of Sterling woes was a re-emergence of Brexit worries.

UK retail sales figures on Thursday were better than expected coming in at -0.2% which was better than the forecast -0.5%, up by 6.2% on the same month last year while all July numbers were revised upwards. The data was vaguely positive for Sterling but their impact was muted by the Bank of England rate announcement. The Monetary Policy Committee minutes stated that “a majority of members expect to support a further cut” if warranted by economic conditions.

Although that comment cannot be held responsible for Sterling’s woeful performance at the end of last week it was not exactly helpful, the big hits came from politicians. Bloomberg reported that chancellor Philip Hammond had conceded Britain’s membership of the single market would be inconsistent with immigration controls and EU president Donald Tusk said Britain’s exit process will begin in January or February. So the old wounds were reopened and Sterling’s supporters ran for the hills.

The US ecostats on Thursday and Friday sent contradictory messages. Retail sales were weaker making an interest rate rise this week less likely however, inflation rose to 1.1%, making a rate increase more likely. Investors therefore focused on the inflation number and pushed the US Dollar higher, turning what had been a lacklustre day into a fairly good one, strengthening by three quarters of a cent against the Euro and by two cents against Sterling.

There is little on today’s agenda other than a handful of residential real estate numbers. It will be central bank announcements that hog the headlines in the next few days with the two most important coming from the Bank of Japan and the US Federal Reserve on Wednesday.