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  • Pound rockets on rumours Spain and the Netherlands want ‘soft Brexit’

    Staying on top of the latest currency news can help you time your transfers more effectively, so find out what you should be looking out for over the next couple of weeks…

    Latest currency news

    The pound started the New Year on rocky form, thanks to more unsettling political developments and mixed economic data. GBP/EUR slumped to lows of around €1.1210 on two occasions, but also managed to record highs of €1.1350.

    Meanwhile, GBP/USD rose from a low of US$1.3461 to hit a post-referendum high of US$1.3809.

    EUR/GBP trended between a low of £0.8810 and a high of £0.8920. EUR/USD, meanwhile, has recovered from a low of US$1.1918 to hit a more-than three-year-high of US$1.2288.

    What’s been happening?

    The pound started 2018 on solid form - even if UK data didn’t.

    Markit’s UK manufacturing PMI, released on 2nd January, fell further-than-expected to 56.3, while the construction PMI published on the 3rd dropped to 52.2 instead of to the predicted 53.

    Even the better-than-expected rise in the UK services PMI, released on 4th January, failed to particularly lift the pound, although by the first weekend of 2018 Sterling was closer to the week’s highs that its lows.

    Last week saw UK politics firmly back in the spotlight. Theresa May reshuffled her Cabinet at the start of the week, but markets weren’t impressed by the lacklustre activity – with key people such as Boris Johnson somewhat controversially kept in place.

    Overall, many commented that the lack of changes illustrated just how weak Theresa May’s position remains, raising questions over her ability to negotiate and implement a Brexit that favours the UK economy

    A slew of data on the 10th failed to overly strengthen the pound, although the figures were mostly positive; even the trade balance figures, which showed the deficit widened on the month, revealed a narrowing on the quarter and on the year.

    GBP raced higher at the end of the week, however, thanks to suggestions Spain and the Netherlands were in favour of a ‘soft Brexit’ and were planning to lobby other EU nations to agree.

    What do you need to look out for?

    The most impactful data this week will be the December consumer price index figures released on Tuesday.

    The data is expected to show that overall price growth slowed from 3.1% to 3%, while core price growth slowed from 2.7% to 2.6%.

    Given that surging prices are hampering consumers’ ability to spend money, a slowdown in inflation may be welcomed by the markets.

    Wednesday’s speech from Bank of England (BoE) official Michael Saunders could cause some turbulence, as he is one of most hawkish members of the Monetary Policy Committee (MPC) and so may offer markets a reason to be upbeat about the interest rate outlook.

    Returning to the importance of consumption for the UK economy, Friday’s December retail sales figures could weaken the pound, considering a large decline is predicted month-on-month.

    Tuesday 23rd will bring the latest round of government borrowing figures and industry data from the Confederation of British Industry (CBI).

    Wednesday’s average earnings figures could give the pound boost if they show an acceleration in pay growth, especially if tomorrow’s inflation data does slow as expected, as both these things combined will help improve the outlook for consumer spending.

    Next week ends with the release of the UK’s fourth-quarter GDP figures, giving markets a chance to reflect upon the impact of Brexit in the first full calendar year since the referendum.

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