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Monthly Wrap: GBP – Pound climbs on Brexit progress but softens as economic impact of March snowstorm is revealed

currency-newsMonthly Wrap: GBP – Pound climbs on Brexit progress but softens as economic impact of March snowstorm is revealed
Key takeaways:
  • UK and EU publish joint Brexit treaty draft, although some points of contention remain
  • Bank of England and Office for National Statistics warn over consumer spending weakness
  • GBP Monthly lows: €1.11, $1.37, AU$1.76, NZ$1.89, C$1.77
  • GBP Monthly highs: €1.14, $1.42, AU$1.84, NZ$1.96, C$1.84
The pound received a modicum of support after Chancellor of the Exchequer Philip Hammond delivered his Spring Statement thanks to his slightly upbeat tone, despite the fact that the report was accompanied by some gloomy economic forecasts.

Publication of a joint UK-EU Brexit treaty draft on 19th March kicked pound Sterling exchange rates into a higher gear and saw two days of sharp appreciation followed by a week of staunchly defended gains.

Although certain issues will continue to plague Brexit negotiations - primarily the topics of the Irish border, and also fishing quotas - this was a solid step in the right direction and revealed that negotiators have made more progress than markets had believed.

Fears over the outlook for the UK economy, in particular consumer spending, have been dragging the pound back from its mid-month highs of the past few days.

Last week both the Bank of England (BoE) and the Office for National Statistics (ONS) released a report warning over the weakness in consumer spending, with the letter stating that consumer spending is growing at the weakest pace in six years and the former suggesting that soft consumption is causing the retail and leisure sectors to show some signs of ‘financial distress’.

The latest monthly manufacturing, construction and services indices from IHS Markit have shown that the so-called Beast from the East’ snowstorm that battered the UK last month had a significant impact upon sectoral output, as demonstrated by a worse-than-expected slowdown in the services sector and a surprise contraction in construction sector activity.

Negotiations on trade with the EU post-Brexit will begin this month, so it is almost certain there will be plenty of announcements, rumours and speculation to keep GBP on volatile form.

As the end of the month draws near, market attention will increasingly turn to the Bank of England monetary policy meeting on Thursday 10th May, when markets believe policymakers will vote to hike interest rates to 0.75%.

This could see data at the end of April largely ignored, with one major exception.

Friday 27th of April sees the publication of preliminary estimates for first-quarter GDP. Economists are expecting a soft result, especially given the damage done by the ‘Beast from the East’.
 
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