Sterling Makes Gains Despite Negative Outlook (Matthew Vassallo)

The Pound has found some support during Tuesdays trading, despite a negative outlook for the UK economy over recent weeks. GBP has made gains against both the EUR & USD and whilst I do not anticipate this spike to continue at the same pace over the coming weeks, it is reassuring for those clients holding GBP, especially when we consider the negative spiral we’ve seen since the turn of the year.

It has been debated for weeks as to why the Pound is suddenly stuttering, considering many believed it would continue on its upward curve during the first quarter of 2016. Personally I felt we saw an overvaluation of Sterling against both the EUR & USD for some time and a realignment was always likely. This drop has come quicker and been more aggressive than I expected but has come in line with a run of inconsistent economic releases in the UK. Bank of England (BoE) governor Mark Carney seems to change his opinion like the wind but has basically eliminated the chance of UK interest rate hike this year. He even alluded to the fact they would cut rates again if necessary during his public address yesterday, which makes the Sterling strength we saw even more surprising. On the flip side of this the Pound has found support despite Carney’s comments and this means we may be seeing the Pound bottom out.

I do not feel a move back above 1.35 against the EUR is likely and I also feel the greenback will find protection around 1.45.

Not a huge amount of economic data out for the UK this week, so investor focus is likely to switch to Thursday’s UK Gross Domestic (GDP) figures. This is always considered a key economic barometer as to the relative health of an economy and with an improvement to 0.5% growth expected, we could see Sterling hold its position over the coming days.

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