Sterling
British sentiment improved on Friday thanks to data released by the Office for National Statistics (ONS) confirming that the UK economy proved more resilient than initially anticipated in the immediate aftermath of the EU referendum.
The ONS announced that Britain’s dominant service sector, which includes everything from restaurant work to accounting and accounts for around 80% of UK GDP, expanded at a rate of 0.4% in July. The upbeat data shows that British consumer behaviour was not significantly impacted by the historic referendum vote and suggests that Britain may not fall into recession in the second half of the year. In addition, second quarter UK GDP was revised higher from 0.6% to 0.7%, indicating that the economy was less susceptible to ‘Brexit’ fears than initially feared in the run-up to the vote.
However, the Pound took a hit over the weekend in response to a statement from Prime Minister Theresa May outlining plans to invoke Article 50 of the Lisbon Treaty, thus triggering the two-year divorce process from the European Union, by the end of March 2017. Analysts had hoped that policymakers would delay the process in order to achieve a smoother transition. One fear is that elections in Germany and France next year could cause London’s negotiation partners to change midway through the talks.
Euro
Sterling performed well against the Euro on Friday morning in reaction to the ONS’ upbeat assessment of the UK economy. However, the Pound’s gains disappeared by the end of the day as demand for the single currency was bolstered by a rare rise in Eurozone inflation.
Hot on the heels of an encouraging German CPI report, the Eurozone consumer price index jumped from 0.2% to 0.4% in September. The uptick in price pressures boosted the appeal of the Euro because it was seen to reduce the prospect of the European Central Bank loosening policy further in the next few months.
Demand for GBP/EUR decreased further over the weekend in reaction to Theresa May’s plans for a Q1 2017 invocation of Article 50.
US Dollar
The Pound to US Dollar exchange rate remained fairly flat on Friday as robust UK figures from around the time of the ‘Brexit’ vote combined with a slight uptick in US inflation to leave GBP/USD sentiment in neutral territory on the day.
The US Personal Core Expenditure (PCE) price index, which is the Federal Reserve’s preferred measure of inflationary pressures, rose from 1.6% to 1.7% in August, bringing the PCE ever closer to the US central bank’s 2.0% target. Investors saw the uptick as a sign that the US economy is edging closer to a time when the Fed will opt to raise interest rates, with a majority of market players forecasting December as the most likely date.
However, ‘Cable’ tumbled by around a quarter of a cent when markets reopened for the week and responded to UK PM Theresa May’s latest ‘Brexit’ proposal.
Canadian Dollar
The Canadian Dollar strengthened by around 80 pips against the Pound over the weekend thanks to some stronger-than-anticipated growth data linked to the Canadian economy. The latest GDP report showed that the North American nation witnessed an 0.5% uptick in output during the month of July, which outshone forecasts of 0.3% and drove demand for the ‘Loonie’.
Australian Dollar
Sterling mounted a mild, and ultimately futile, rally versus the Australian Dollar on Friday. The Pound was initially buoyed by the decent July UK service sector data, however, sentiment towards the embattled Pound swiftly evaporated and GBP/AUD closed for the day around half a cent lower than it started. Expectations of an early ‘Brexit’ are liable to weigh on the UK currency over the next few days now that PM Theresa May has outlined plans to begin the two-year divorce process before the end of March 2017.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate tumbled by around a cent over the weekend as fears that an early and potentially ‘hard Brexit’ could undermine economic confidence in the UK continued to work against the world’s oldest currency.
Data Released
09:30 GBP Markit Manufacturing PMI (Sep)2 52.1
09:00 EUR Markit Manufacturing PMI (Sep)2 52.6
14:00 USD ISM Manufacturing PMI (Sep)3 50.5