Sterling re-established itself at levels against the US Dollar that were last seen prior to the result of the UK General Election a month ago, touching 1.30 briefly at the close of June. The reason for the about turn on Sterling were the comments made by the Bank of England Governor Mark Carney who, from a week earlier had said that an interest rate hike was unlikely which had led to a selloff in the pound, to hawkish comments that the Bank would start to reduce Quantitative Easing and that they would need to manage inflation = interest rate increase?
The US Dollar is struggling currently under the issues facing Donald Trump, and although there are no imminent actions, a fear he could be impeached is weakening the currency. The dollar is also not helped by the budget proposals which some feel have no credibility. Consequently, Sterling is close to an 8-month high. Positive UK data to some extent supports this, such as the 42-year low in unemployment figures, but other data such as poor wage inflation, increasing inflation do undermine …
Well, who knows! French elections, UK elections, Brexit discussions gathering pace, USA/N. Korea tensions, political changes in Turkey. Oil prices declining again. A brave man can predict through these global issues.
Brexit has been triggered with minimal impact on currencies. Sterling has strengthened since the official announcement. So the future of Sterling is now down to the announcements as the negotiations proceed. The US dollar is heading towards its worst 3-month performance in a year. Economic data looks good in this region, but the ‘Trump’ effect drags the dollar lower. In the Eurozone whilst fears of Marie Le Pen gaining office reside have added some strength, and data gradually coming from German and French statistics, looks positive.
The main item being talked about at present is the inevitable interest rate hike in the USA, and this has been the cause of the recent realignment of Sterling to a 7week low. The triggering of article 50, must occur within the next 3 weeks, so how low can the pound go, or is this fully factored into the current rates?
The ‘Trump effect’ is having a very positive impact on the US dollar at present, as the executive orders do appear to, at least in the short term, provide a stimulus to the US economy and the Dow has responded in a corresponding manner. However, we are at the beginning of the ‘honeymoon’ and the USA is now downgraded by the Economist Intelligence Unit, to a ‘flawed democracy’ with declining trust and increasing inequality, leading to populist politicians …
2017 starts with much focus on developments in the USA, firstly the Fed reserve’s minutes indicate they are prepared to raise interest rates, three times in 2017, and faster than market players anticipated, this undoubtedly supports the dollar. The other will be the emerging fiscal policy of President elect Trump!
US Dollar strength has pretty much dominated the last month, and with data continuing in a positive tone from the USA, it seems an absolute dead cert that the Fed will raise interest rates in the states in December as planned. In the UK, the Autumn statement was well received, despite a significant gap in the public finances, but encouraged by plans to invest in UK infrastructure, and a settling of sentiment that ‘life after Brexit’ will continue!
Sterling down 4% again this past month against both € and $, is for our UK clients masking some favourable market movements. The Eurozone is bolstered by the roaring economy of Germany, that continues to support the zone, whilst the divergence from other countries challenges ECB policy and complicates the EU way forward …
Brexit continues to be the over-riding sentiment impacting Sterling exchange rates at present. Will there be further interest cuts, what about more QE? Will it be a hard Brexit, impacting the financial services sector, or a softer more accommodating agreement?