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Let’s just blame Brexit – 29th November 2016

Let’s just blame Brexit

Yesterday morning at 9.30am Sterling fell by half a cent against the US Dollar. There was no data or news to act as the catalyst for the decline. So what was the cause? Let’s point the finger at Brexit. Pretty much everything else is blamed on Brexit nowadays!

In reality, Sterling’s fall owed more to profit-taking than to Brexit or any other fundamental economic factor. Sterling has been – and remains – the top performer over the last month, strengthening by an average of 3.8%. With gains of that scale in hand, a decent-sized order to sell Sterling – or even the rumour of one – would have been enough to encourage investors to take some profit or at least to pull back their purchases. The net result was an average daily loss of 0.8% which equated to a drop of a third of a Euro cent, half a Swiss cent and one US cent.

More in hope than in expectation, MEPs asked the European Central Bank president what would be the consequences of Britain leaving the EU. Mario Draghi offered the only possible answer: “We don’t know.” Genius! He did, however, allow that “right now the greatest risk comes from impaired growth”. The ECB Governing Council meets next Thursday to decide what next to do with monetary policy so Draghi’s comments to the European parliament all pointed to a continuation of the ECB’s current strategy of asset purchases and ultra-low interest rates. The only question is whether or not the council will decide to extend the programme beyond its theoretical end-date next March.

Two ballots on Sunday could influence that decision. Prime minister Matteo Renzi could resign if, as looks likely, a referendum in Italy rejects his reform plans. Such a result would also make life even more difficult for Italian banks. In Austria electors will have to choose between two presidential candidates; one green, the other a Trumpesque right-winger who has toyed with the idea of taking the country out of the EU.

The hero of today’s agenda is the revised figure for US economic growth in the third quarter with a tiny upward revision possible. The first estimate a month ago suggested that US gross domestic product expanded by an annualised 2.9% in Q3, which equates to a quarterly 0.7%. Analysts think that could be revised to 3.0%, which would just be enough to lift quarterly growth to 0.8%. Sweden also reports on GDP this morning; growth there is pencilled in at a rather more modest 0.3%.