Tuesday August 29, 2017 - 18:46:22 GMT
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Brexit Uncertainty Continues to Weigh on Sterling
The British pound had been expected to gain further ground against the dollar Thursday, on positive hopes for the second quarter UK GDP data. But it didn’t happen. Instead, the figures disappointed, with 0.3% quarter-on-quarter growth and annual expansion of just 1.7% - a decline from the 2.3% increase recorded in the first quarter of 2017.
While those numbers failed to impress, other details were even less welcome. Consumer spending growth slowed to 0.1% in the second quarter from 0.4% in the first, while business investment was flat - below expectations for a quarterly gain of 0.4%.
Sterling was hit hard by the data and it tumbled against both the euro and the dollar, before recovering a little by the end of trading Thursday.
Bearish on Sterling
Prior to the UK GDP release, there had been some signs that analysts were slowly beginning to warm to the UK pound, amid comments that fears of a hard Brexit were overblown. The increasing likelihood of a Bank of England interest rate rise has also helped sterling, too, despite the chance that any rise will be small and not for some months, if this year at all.
While that may still be true, it appears British consumers and businesses are still struggling to echo that mild optimism and that has weighed on the economy in the first half of 2017. The data also confirmed the UK’s position as posting the worst GDP performance in the G7, a title it hasn’t held for some time.
Industry insiders ConnectFX (https://www.connectfx.org/broker-reviews/) take a long-term currency view and agree that while in the short-term the road will be choppy, over time, sterling will regain much of the strength it portrayed ahead of the Brexit vote. Of course, that lack of plain sailing right now, means there are opportunities to take advantages of quick currency changes, if you can see them coming early enough.
The US Jackson Hole central bank symposium is the next potential bump in the road for sterling – and other currencies, too. While the annual get-together often offers insights as to where central bank policy is headed next, the general title of the 2017 Wyoming symposium – ‘Fostering a Dynamic Economy’ suggests there may be fewer rate timing hints than usual.
Indeed, the US Federal Reserve Bank (the Fed) and European Central Bank (ECB) have both warned the media not to expect any news from their speeches.
In the meantime, sterling may get some support from a lack of forthcoming rate hikes around the world. It might also lose ground if any major views are in anticipation of a hard Brexit or an even more drawn-out process than is already expected.
Whatever the outcome, the currency charts will likely look interesting come Monday morning.
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