- Pound stable but subdued
- Greek concerns dominate European markets
- Eurozone data looking good
- UK economy buoyant, despite Brexit gloom
Pound stable but subdued
The British Pound enjoyed a limited resurgence throughout February, having started the month trading close to €1.15. It did manage to drag itself off the floor and press as high as €1.19, albeit only very briefly.
UK data released during the period was reasonably positive overall, although Sterling’s short-lived strength felt more to do with the political situations unfolding within the Eurozone – and in particular the influence of the rise of the anti-EU parties and what bearing they may have on the upcoming elections in the Netherlands, France, Germany, and possibly Italy.
Greek concerns dominate European markets
Concerns surrounding the Greek debt situation are also never far from the surface, with Greek actions scrutinised to see whether they are aligned to their EU/International Monetary Fund (IMF) creditor expectations prior to the release of the next tranche of funds from the latest bailout package. IMF negotiators continue to press for further reform and austerity before sign off is agreed, while Greece has little appetite nor capability to commit to yet more of the same.
Eurozone data looking good
Eurozone data, which has been on the whole rather encouraging, should have been more supportive for the single currency, although it seems that the markets are far too preoccupied in shunning French investments while Eurosceptic Presidential candidate, Marine Le Pen, performs well in the opinion polls. The Eurozone composite Purchasing Managers’ Index hit 56 during February, its highest level in six years, helping to paint a picture of a growing recovery within the EU. Eurozone inflation was also running higher at 1.8%, as food and energy prices impact the bottom line. The EU unemployment rate delivered a picture of improving health, as the jobless rate dipped to 9.6% in December, representing the lowest level reported since May 2009.
UK economy buoyant, despite Brexit gloom
Yet again, the UK economic situation confounded the doomsayers. Fourth quarter UK Gross Domestic Product (GDP) growth was revised upwards to show 0.7% for the final three months of 2016 meaning the economy expanded by 1.8% last year. Further evidence that the UK ended 2016 on a strong footing came from both the manufacturing and construction sectors who both recorded increased output for the month of December. The UK economy now appears to have grown at the fastest pace throughout 2016 amongst all G7 leading industrial nations. Not something that many would have predicted six months ago.
Far from entering a recession, Britain has prospered, with the loosening of monetary policy and the weakening of Sterling post-Brexit vote; growth is encouraging, inflation is rising, both domestic and business confidence levels have not collapsed, leaving the UK for the moment at least rather delighted by its situation, against all the odds.
Retail sales figures for January did highlight an increase on the same month a year ago, although the growth rate was the lowest since November 2013. With conventional stores and online sales declining, this would suggest that the increase in fuel and food costs now being passed on to consumers is having a significant impact on consumers’ spending habits.
UK Inflation continues to climb, with the latest Consumer Price Inflation (CPI) release at 1.8%, although this figure was actually lower than had been predicted. With inflation running at its fastest pace in more than two years, it seems that the next adjustment to the UK base rate will be to go up, although Bank of England Monetary Policy Committee members are yet to side for such action.
The Bank of England (BoE) appears side lined for the moment – whether rightly or wrongly – as it may wish to refrain from making any imminent adjustments to monetary policy, as the outcome from Brexit is far from being resolved. Most commentators do, however, now suggest that the next move, whenever that may be, will be to hike the rate.
The triggering of Article 50 during March moves closer, but still the long term implications are far from clear. While it is hoped that a trade deal with the EU can be reached, helping to create a positive backdrop for the Pound at the moment, it is too soon to become complacent that a satisfactory outcome will be swift and ultimately favour the UK without implications.
Any notion of a hard Brexit will rile the markets and leave Sterling looking for friends, while all encouraging signs will offer support for a stronger Pound. To date, there has been little in the way of substantive news on the situation, hence one of the reasons why Sterling has been relatively stable of late.
For Euro buyers
1.2000 has not been breached, since it broke just after Brexit and that level is now solid resistance. 1.1800/1.1850 now also provides near term resistance, which has held throughout 2017. Near term buyers should target no higher than 1.1850. On the downside, a break of 1.1450 would signal a new test of 1.1000
For Euro sellers
1.1900/1.200 looks like solid resistance; and if you have some time; I would suggest leaving protection above these levels, which have not looked like breaking since just after the referendum. A break of 1.1450 would suggest a quick test lower.
Article supplied by Halo Financial, March 2017
For further details – Ask the Experts
Download our free Money Matters guide