What Factors are effecting the Pound and what has the potential to cause Sterling strength?
The pound is finding it difficult to rally against the majority of major currencies. If we look at GBP/EUR it has remained between 1.1217-1.1457 for the last 30 days. UK data releases have been poor of late across the board. Stifling any potential rally. You can blame politicians with their own political agenda for current pound weakness. Inflation is of particular concern, currently sitting at 2.9%. This is a direct result of the vote to leave the EU, the pound has weakened considerably which has caused imports to become more expensive. Businesses purchasing these imports are then passing these price increases on to the consumer. This is fine provided consumers continue to spend, if they don’t this is when the economy could be in real trouble.
Consumer confidence is linked to wage growth. If inflation is at much higher level than average wage growth this is when it is expected that consumers will tighten their belts. Average wage growth is due to out tomorrow, it currently sits at 1.7% and expectations are that it will rise to 1.9%. If data fails to reach 1.9% expect further Sterling weakness.
In order for the pound to make significant gains we need a stable government in place, not one constantly threatening the PM’s position. Political uncertainty historically weakens the currency in question and that is what we are witnessing at present. A stable government is also needed in order to conduct Brexit negotiations effectively, these will be some of the most important talks for the UK in the last 50 years it is vital they are conducted without internal bickering.
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