Sterling (GBP) Rally Shudders to a Halt as Markets Prepare for Next Phase of Brexit Negotiations
The Pound to Swedish Krona (GBP/SEK) exchange rate slipped on Tuesday having failed to capitalise on Sweden’s widening trade deficit and limited by market concerns regarding the next phase of Brexit negotiations.
Economists had been optimistic that Sterling would continue its rally after last week’s EU summit in which member states approved the terms of the UK’s Brexit transition.
Instead, it would appear that this outlook was overly optimistic, with the Pound’s trajectory falling short of expectations and the transitional breakthrough now seeming to be a damp squib.
Markets were initially happy that greater clarity had been provided to businesses and citizens, with a cliff-edge Brexit delayed, but the approval is in many ways a deferral, with investors still anxious that the next phase could be harder than the first two and that progress on the Irish border could be untenable.
Olaj Milhøj, Senior Analyst with Danske Bank, echoed this outlook, stating:
‘While positive, it is not the game-changer and in any case a deal was widely expected. The negotiations on the future relationship are going to be much more complicated, not least with respect to the outstanding Irish border issue.’
This outlook weighed on Sterling, with the current upsurge in demand for the US Dollar (USD) also siphoning demand.
Swedish Data Disappoints – Swedish Krona (SEK) Exchange Rates Remain Unperturbed
The Swedish Krona (SEK) proved resilient on Tuesday, rising against Sterling despite Sweden’s trade deficit expanding beyond forecasts.
According to figures from Statistics Sweden, Sweden’s foreign trade deficit increased in February to SEK 3.4bn, up from SEK 1.2bn in the same month of the previous year.
This was due to an 8% rise in exports, compared to a 10% rise in imports.
Beyond this, Sweden’s consumer, and business confidence readings slipped in March to 101.5 and 107.1 respectively, with consumers concerned that worsening US/China trade relations could weigh on the global economy.
In other, slightly better news, Sweden’s producer price index leapt to 2.8% year-on-year in February, up from the previous period’s 2.5% and the forecast of 2.4%, with the consumer inflation expectation also climbing from 2.8% to 2.9%.
Ultimately, however, concerns continue regarding the weakness of Sweden’s wage growth, with the Riksbank not expected to move hawkishly until wage growth has accelerated.
UK GDP in the Spotlight – What can we Expect for the Pound Swedish Krona (GBP/SEK) Exchange Rate?
This week might be a relatively quiet one for the GBP/SEK exchange rate, but Thursday’s final estimate of UK gross domestic product (GDP) readings could shake things up a bit.
Markets currently expect UK GDP to print at 1.4% year-on-year, significantly down from the previous period’s 1.8%.
If this occurs then it could hamper market expectations that the Bank of England (BoE) will move for a rate hike in May, thus potentially limiting the GBP/SEK rate even further.
Conversely, a better-than-expected reading could give the Pound a notable boost.