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Monthly Wrap: GBP – Pound plummets as dovish rate hike & Brexit fears drag on sentiment

currency-newsMonthly Wrap: GBP – Pound plummets as dovish rate hike & Brexit fears drag on sentiment
Key takeaways:

-              Rate hike fails to inspire GBP due to BoE’s dovish outlook
-              Fears of a ‘no-deal’ Brexit begin to drag on Sterling
-              GBP Monthly lows: €1.11, $1.29, AU$1.74, NZ$1.91, C$1.68
-              GBP Monthly highs: €1.13, $1.33, AU$1.79, NZ$1.95, C$1.74

The pound experienced heavy losses in July, slumping to new multi-month lows against the majority of its peers as it faced significant headwinds in the form of Brexit uncertainty and a less that confident rate hike from the Bank of England (BoE).

Kicking off the slide in Sterling last month was a run of weak UK economic data, with the latest UK wage growth, inflation and retail sales figures all printing below expectations, dampening hopes that the BoE would follow through with a rate hike in August.

Things were looking up for the pound again at the end of July however as markets welcomed the announcement that Theresa May would be taking personal control of Brexit negotiations, with investors hopeful it would help expedite negotiations.

However, this counted for little as we entered August and all attention turned to the BoE.

While the bank ultimately lived up to expectations and raised interest rates to 0.75%, the move failed to lift Sterling, with the currency instead slumping as BoE Governor Mark Carney signalled that rates would likely continue to rise, but at a slower pace than markets had hoped.

The downtrend in the pound has only accelerated from there as the UK’s international trade secretary Liam Fox warned that a ‘no-deal’ Brexit looks to be the most likely outcome of negotiations.

This has seen GBP/EUR slump to a fresh nine-month low, while propelling GBP/USD close to a new one-year low.

Barring a breakthrough in negotiations, the outlook for the pound looks increasingly bleak, with the spectre of Brexit likely to continue to hang over the currency as we enter the final six months before the UK formally leaves the EU.

In light of this, GBP investors will likely be hoping that the UK’s upcoming GDP figures will print a little stronger than expected, with current forecasts of a rebound to 0.4% growth in the second quarter unlikely to deliver much in the way of long-term gains for Sterling.

Looking to later in August, the GBP exchange rate could be left foundering once more if the next wage growth and inflation readings also come in below expectations.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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