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Monthly wrap: GBP: Pound’s advance on Theresa May Brexit speech quickly turns to retreat on trade war fears

currency-newsMonthly wrap: GBP: Pound’s advance on Theresa May Brexit speech quickly turns to retreat on trade war fears
Key takeaways:
  • Theresa May gives markets some clarity on UK’s preferred post-Brexit trade agreement
  • US trade tariffs spark fears that States will not be a strong UK partner post-Brexit
  • GBP Monthly lows: €1.11, $1.37, AU$1.76, NZ$1.89, C$1.74
  • GBP Monthly highs: €1.13, $1.41, AU$1.78, NZ$1.92, C$1.80
Markets were finally given some more Brexit clarity last month after Prime Minister Theresa May spent a gruelling session formulating a plan for post-Brexit trade with leading members of her Cabinet.

Anticipation of this pushed the pound higher in the preceding days, with markets and businesses alike preparing to welcome a more defined outlook for Brexit and therefore the UK economy.

May’s speech outlined an ambitious new trading relationship – one that was quickly shot down by European Council President Donald Tusk.

With May having quickly rejected the EU’s draft of the Brexit agreement due to contentious plans for the Irish border, markets weren’t feeling entirely confident that the outcome of the upcoming talks would be positive.

Fears worsened last week as the White House moved forward with plans to implement import tariffs on steel and aluminium.

This is a step towards protectionism from the US at the worst time for the UK, with Downing Street hoping for a lucrative free-trade deal from the States after Brexit in order to make up for what will likely be diminished UK-EU trade.

Markets were also unimpressed by Chancellor Philip Hammond’s Spring Statement, which included disappointing forecasts from the Office for Budget Responsibility (OBR).

The OBR revised upwards its forecast for 2018 GDP by 0.1%, but revised down its projections for 2020 and 2021.

February’s inflation rate is set for release on Tuesday 20th, which could weaken the pound if the consensus forecast for a slowdown from 3% to 2.9% is met.

The Bank of England (BoE) is set to announce its latest monetary policy decisions on Thursday 22nd, which is unlikely to see any changes to the current stimulus package.

However, markets are expecting an interest rate hike in May, so will be watching closely for any signs that the Monetary Policy Committee (MPC) believes the economy is strong enough to support higher rates.

Next week also sees the resumption of Brexit negotiations, with the UK and EU hopeful of striking an accord on a transitional period and discussing the terms of a post-Brexit trade deal.
 
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