empty
 
 
16.08.2019 10:21 AM
Sterling bounces for a while, but remains vulnerable

The UK economic data has provided the sterling with support this week as most major reports beat consensus forecasts.

Underlying average earnings strengthened to an 11-year high of 3.9% from 3.6% previously. The headline CPI inflation rate increased to 2.1% from 2.0% while retail sales also posted a monthly gain for July, stronger than expectations of a small decline.

The domestic data suggests that the Bank of England will need to be very cautious in easing monetary policy. The inflation and wages data would back the case for a small increase in interest rates.

Industrial sentiment remains depressed, but the Bank of England will hardly be able to sort it out through interest rates, especially with the sterling already very weak.

There is a strong likelihood that the Federal Reserve will cut interest rates again at the September meeting and that the ECB will announce an aggressive easing package next month. Given global monetary easing, net UK yields have, therefore improved.

Political factors will inevitably set the tone for the sterling given the underlying Brexit uncertainty. The government under Prime Minister Johnson remains committed to leaving the EU on October 31st even if no deal with the EU can be reached.

A majority of the House of Commons members remain committed to avoiding any no-deal outcome with the scene set for an intense political battle from early September when parliament returns from recess.

The G7 Summit on August 24-26th will provide clues to Brexit prospects as Boris Johnson is likely to meet key EU officials including German Chancellor Merkel. Overall political risk premiums will remain very high, although derivative markets indicate that underlying selling pressure on the sterling has eased slightly.

This image is no longer relevant

Tim Clayton,
Analytical expert of InstaForex
© 2007-2024
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST
  • Chancy Deposit
    Deposit your account with $3,000 and get $8000 more!
    In March we raffle $8000 within the Chancy Deposit campaign!
    Get a chance to win by depositing $3,000 to a trading account. Having fulfilled this condition, you become a campaign participant.
    JOIN CONTEST
  • Trade Wise, Win Device
    Top up your account with at least $500, sign up for the contest, and get a chance to win mobile devices.
    JOIN CONTEST
  • 100% Bonus
    Your unique opportunity to get a 100% bonus on your deposit
    GET BONUS
  • 55% Bonus
    Apply for a 55% bonus on your every deposit
    GET BONUS
  • 30% Bonus
    Receive a 30% bonus every time you top up your account
    GET BONUS

Recommended Stories

Can't speak right now?
Ask your question in the chat.
Widget callback