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50 matches for " pound":
In theory, any hit to sentiment and business investment as the E.U. referendum nears could be offset by a better foreign trade performance, due to the Brexit-related depreciation of sterling. But not every cloud has a silver lining.
Brexiteers have downplayed the economic consequences of a no-deal exit by arguing that a further depreciation of sterling would cushion the blow.
Net trade has been a major drag on the economy's growth rate in recent quarters, and February's trade figures, released today, are likely to signal another dismal performance in the first quarter.
The consequences of sterling's sharp depreciation for inflation were brought home yesterday by the news that the iPhone 7 will cost more than its predecessor. The entry-level version is priced at £60 more than its iPhone 6S equivalent. Of course, the new version is more advanced, but the fact that the dollar price held steady, at $649, demonstrates the U.K. price hike entirely is due to the adverse impact of the weaker pound.
November's money and credit figures brought welcome news that the recovery in bank lending is strengthening. This revival should continue, now that banks have completed most of the work required to improve their capital positions. But we doubt lending will recover quickly enough to prevent the economic recovery slowing in 2016, as the downward pressure on growth from the fiscal squeeze and the strong pound builds.
The Chancellor argued in a speech on Thursday that the U.K.'s economic recovery is threatened by a "dangerous cocktail" of overseas risks, including slowing growth in the BRICs--Brazil, Russia, India, and China--and escalating tensions in the Middle East. Exports are set to struggle this year, but the strong pound, not weakness in emerging markets, will be the main drag.
Chief U.K. Economist Samuel Tombs discussing the effect the general election will have on the pound,
Chief U.K. Economist Samuel Tombs on the Depreciation of the Pound
Chief U.K. Economist Samuel Tombs discussing the devaluation of the GBP
Chief U.K. Economist Samuel Tombs discussing sterling in 2018
Chief U.K. Economist Samuel Tombs on the government's fiscal policy
The latest balance of payments figures, released Wednesday, look set to show that the current account deficit widened in Q3, underlying the U.K.'s vulnerability to a sudden change in overseas investor sentiment. The risk of a full-blown sterling crisis, however, is lower than the enormous current account deficit would appear to suggest.
Today's advance Q2 GDP report in Germany will add evidence that the EZ economy performed strongly in the first half of 2017. We can be pretty sure that the headline will be robust. The German statistical office reports a confidential number to Eurostat for the first estimate of EZ GDP--two weeks ahead of today's data--which was a solid 0.6%.
Signs that the government is softening its Brexit plans, in response to its substantial defeat in the Commons last week, has enabled sterling to recover most of the ground lost against the dollar and euro in the fourth quarter of last year.
The Eurozone's trade surplus remained subdued at the end of the second quarter; it dipped to €16.7B in June from €16.9B in May.
Expectations are running high that the MPC will strike a more hawkish tone today in the minutes of this month's meeting and in the quarterly Inflation Report. Investors are pricing in a 45% chance of the MPC raising interest rates before the end of 2017, up from 30% before the last Report in November.
Sterling depreciated further last week as the Prime Minister's Brexit plans were tweaked by Brexiteers and given a lukewarm reception by the European Commission.
Business investment held up surprisingly well last year.
April's production data, released today, look set to indicate that the industrial sector's recession--its third in the last eight years--deepened in the second quarter. We think the consensus expectation that industrial production held steady in April is too upbeat. We look for a 0.3% month-to-month drop.
Predicting which way markets would move in response to potential general election outcomes has been relatively straightforward in the past. But the usual rules of thumb will not apply when the election results filter through after polling stations close on Thursday evening.
Sterling's depreciation has done little to remedy the U.K.'s dependence on external finance.
Sterling jumped last week to its highest level against the dollar since last October in response to news that a general election will be held on June 8. Markets are betting that the Conservative Government will sharply increase its majority, enabling Theresa May to ignore Eurosceptic backbenchers when she strikes a deal with the EU.
Sterling will be under the spotlight again today when four members of the Monetary Policy Committee, including Governor Mark Carney, answer questions from the Treasury Select Committee about the recent Inflation Report.
Evidence that U.K. asset prices still are depressed by Brexit risk has become harder to find.
If sustained, sterling's recent depreciation looks set to drive CPI inflation up to about 3.5% by the end of next year.
It's tempting to conclude from the third quarter's GDP figures, which showed output rising 0.5% quarter-on-quarter, despite a record drag from net trade, that the U.K. economy is comfortably weathering sterling's appreciation. But a closer look at the data shows the net trade drag is the counterparty to some erratic inventory movements. The real net trade hit is still to come.
The MPC's asserted its independence in the minutes of December's meeting, firmly stating that there is "no mechanical link between UK policy and those of other central banks". Markets have interpreted this as supporting their view that the MPC won't be rushed into raising interest rates by the Fed's actions. Investors now expect a nine-month gap between the Fed hike we anticipate next week, and the first move in the U.K.
The key question for the MPC at this week's meeting is whether it is prepared to tolerate the consequences for inflation of sterling's further depreciation since its last meeting in August.
Yesterday's national surveys in the EZ confirmed the downbeat message from the PMIs and consumer sentiment data earlier this week.
A powerful cocktail of cheap money, labour and commodities, allowed to infuse by a hiatus in the government's austerity programme, has reinvigorated the U.K. economy over the last three years. But these supports are now weakening while new headwinds are emerging. The U.K. economy is heading for a pronounced slowdown, one that is under-appreciated by most forecasters and under-priced by markets.
Sterling was the worst performing G10 currency in 2016 and most analysts anticipate further weakness in 2017. The cost of purchasing downside protection for sterling over the next year also continues to exceed upside protection, as our first chart shows.
We remain optimistic on the scope for sterling to appreciate this year, reflecting our views that a deal for a soft Brexit will be reached soon and that the MPC will resume its tightening cycle later this year.
Fears over a Eurozone banking crisis have compounded market volatility recently, and sent bank equities into a tailspin. Deutsche Bank has been the focus of the attention, probably due to its systemic importance and opaque balance sheet. DB's stock price is down a staggering 38% year-to-date, and earlier this week, the German finance minister had to assure markets that he has no worries about the bank's position.
The euro has been one of the main "beneficiaries" of the pound's relentless decline, which took on ridiculous dimensions as the GBP crashed almost 10% in the early hours of Friday. EURGBP briefly touched 0.94, before settling at 0.9, up just shy of 30% since November.
The pound can't get a break. Sterling fell to just $1.24 yesterday, its lowest level against the dollar since March 2017, bar the momentary "flash crash" in January.
December's industrial production figures, released today, look set to surprise the consensus to the downside, pushing down the pound and increasing the chances that the preliminary estimate of a 0.5% quarter-on-quarter increase in fourth quarter GDP will be revised down.
As we reach our Sunday afternoon deadline, Hurricane Irma is pounding Florida's west coast with an intensity not seen since Andrew, in 1992.
The euro's spectacular rise against the pound has been the key story in European FX markets recently. But the trade-weighted euro, however, is up "only" 6% year-to-date, as a result of the relatively stable EURUSD.
Hopes that the economy will not slow over the next year are largely pinned on the idea that net trade will be boosted by the drop in sterling. The pound has tracked sideways over the last two months and is about 15% below its trade-weighted peak in November 2015.
The media abounds with anecdotal evidence of a pickup in domestic and inbound tourism following sterling's sharp depreciation, but the reality is that the weaker pound has not had a tangible positive impact yet.
Sterling took another pounding last week. Resignations from the Cabinet, protests by the DUP, and the public submission of letters by 21 MPs calling for a confidence vote in Mrs. May's leadership, imply that parliament won't ratify the current versions of the Withdrawal Agreement and the Political Declaration on the future relationship with the E.U. next month.
Speculators who have sold sterling over the last six months have been frustrated. Investors have been overwhelmingly net short sterling, but the pound has hovered between $1.20 and $1.25, as our first chart shows. Undeterred, investors increased their net short positions last week to 107K contracts-- the most since records began in 1992--from 81K a week earlier.
Chief U.K. Economist Samuel Tombs on U.K. Labour Market data for May
Chief U.K. economist Samuel Tombs comments on today's retail data release
Samuel Tombs on Halifax House Price Index in May
Chief U.K. Economist Samuel Tombs on U.K. Price Increases
Chief U.K. Economist Samuel Tombs Discussing the UK Goods Trade
Ian Shepherdson on the U.K
Chief U.K. Economist Samuel Tombs on U.K. Retail Sales in July
Chief U.K. Economist Samuel Tombs on U.K. House Prices
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