Blog

Sterling up this morning

• Posted by Shyam Gokani in Bank of England, Bremain, Brexit, Currency, David Cameron, Dollar, Economy, EUR, GBP, Inflation, Mark Carney, Referendum, Retail Sales, Sterling, UK
• August 22, 2016
• No Comments

Sterling inched up on today after registering its strongest week in five against the dollar, as a run of robust economic data suggested Britain’s economy was faring better than expected following its vote to leave the European Union.

The pound was boosted last week after inflation and retail sales numbers for July beat forecasts, adding to signs there has been little immediate impact on consumer from the Brexit vote. Better-than-expected jobless claims data also lifted sterling.

Some of the week’s gains, however, were eroded on Friday when the currency posted its biggest one-day fall against the dollar in two weeks – 0.7 percent – on a report that Britain could formally begin the process of leaving the EU early next year.

A government spokeswoman said Prime Minister Theresa May would not invoke Article 50 of the EU’s Lisbon Treaty, which formally begins divorce proceedings, before the end of this year.

The price action on Friday was a gentle reminder about the risks sterling faces once UK-EU negotiations on terms of Brexit start.

This morning, sterling inched up 0.2 percent to $1.3094, having gained 1.2 percent last week. It gained 0.4 percent against the euro to trade at 86.25 pence.

Analysts say that in a market where speculators hold record high bets against sterling, stronger-than-expected data is providing an excuse for some to trim positions.

But any rally is likely to be brief, given the subdued outlook for the economy and interest rates, which markets reckon will be cut by a further 10 basis points by the end of the year from the record low of 0.25 percent.