Sterling loses positive gains – will the pound continue to weaken?

Sterling loses positive gains – will the pound continue to weaken?

Sterling exchange rates plummeted during yesterday’s trading session as negative sentiment surrounding the UK’s economy continues to weigh on the currency. Less than 24 hours prior, the pound was trading at 4-week highs against the single currency.

The pound had been boosted by the announcement that the UK and EU had reached a deal over trading arrangements in Northern Ireland known as the Windsor framework. Since the Brexit vote in 2016 the pound has lost considerable value against the euro and dollar. Sterling has often gained value when agreements have been reached with the EU, perhaps unsurprisingly given that the bloc is by far the UK’s biggest trading partner.

The Windsor framework is positive for the outlook of trade in Northern Ireland and therefore positive for the UK and the pound, however, the deal needs to be ratified in Westminster and may face criticism from back-bench tory MP’s and the DUP amongst other unionist parties in Northern Ireland.

Positive flash PMI data released on 21st February is another development that has recently improved the outlook for the pound. The data suggested that both the manufacturing and services industries are performing far better than expectation with the UK services sector expanding.

Does this mean the UK could avoid a recession in 2023?

The final reading for services PMI data is released tomorrow morning. If the data is strong once again then we could see a boost for the pound. Strong PMI data is not conducive to a recession so if this data continues to improve the UK may avoid a recession in 2023. UK GDP figures are next released on 31st March and will confirm how the economy is fairing.

Sterling remains under pressure despite the recent positivity for the UK and is trading within range of the 5-month low against the euro and within range of the monthly low against the dollar.

PMI data released from the UK and EU tomorrow could be a driver for rates moving forward. Later this morning there is a key release of Eurozone inflation data. A stronger than expected reading could further strengthen the euro against the pound.

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