The pound has fallen from its recent 11 month high against the Euro with levels for GBP EUR falling back below 1.15. UK inflation data released earlier today arrived weaker than expected at 2.3% from March against an expected 2.5%. The small drop lower saw an instant fall in the price of sterling against all of the major currencies as the markets adjust their expectations of that next interest rate hike from the Bank of England. The central bank have been widely expected to raise interest rates by 0.25% at the next meeting in May although these weaker numbers will now be considered and this may take the pressure off the Bank of England from taking action next month.
If the Bank decides to postpone an interest rate increase then this is likely to see the pound fall lower. Retail sales number released tomorrow are also likely to impact on the price of sterling especially as spending on the high street has reportedly slowed down of late. A weak number tomorrow morning is inly likely to reinforce the view that the Bank of England will not seek to raise rates too soon and risk an economic slowdown with weaker consumer spending due to higher interest rates.
Clients looking to buy Euros and buy dollars may wish to consider securing at what are close to 11 month highs ate present.
Brexit has not been as newsworthy of later during the Easter recess although things could change very quickly on that front. The third round of the negotiations started today outlining the structure of the talks for the future trading relationship between Britain and the EU. I would expect to considerable market volatility on developments here especially when it comes to the Irish border and financial services.
The fact of the matter is that the UK services sector comprises almost 80% of the British economy. What strikes me is that the Chancellor Philip Hammond has stated in the past that if the final deal does not include financial services then there won’t be a deal. With the EU stating that it is not possible to include financial services it would suggest that the prospect of a no deal scenario is still very much on the table. Any talk of this outcome in my view would be negative for sterling in the short term as a result of uncertainty for business and the economy.
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