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Softening industry data and car dealer gloom weighs on pound

Philip McHugh October 24th 2017 - 2 minute read

The latest data suggested that weakened Sterling exchange rates were not benefitting the manufacturing sector in the way economists had expected, which kept the pound on mixed form yesterday.

Sterling has thus far managed to hold above opening levels this morning. GBP/EUR is trending at €1.1233, while GBP/USD is around US$1.3211. GBP/AUD has climbed 0.2% to A$1.6933, while GBP/NZD has shot up 0.8% to NZ$1.9058. GBP/CAD is up 0.1% to 1.6709.

The Chancellor of the Exchequer will answer questions in Parliament today. Read on to see why this could weaken the pound…

What’s been happening?

The pound was on strong form against the euro yesterday, but was stuck around opening levels versus the US dollar.

The latest Confederation of British Industry (CBI) data did not impress, showing a sharp drop into pessimistic territory for the business optimism index and a decline in total orders. Businesses reported that orders from both at home and overseas were weakening and that their investment and hiring intentions had softened.

This, combined with a sell-off in the stock market of car dealer shares following a profit warning from the UK’s biggest firm, Pendragon, kept the UK’s economic outlook gloomy and so markets largely avoided the pound.

A 16-year high Eurozone consumer confidence score of -1 failed to boost the euro against many of its peers. GBP/EUR was able to make strong gains, with markets wary of buying the euro ahead of Thursday’s key monetary policy meeting.

Markets are expecting the European Central Bank (ECB) to cut the rate of asset purchases under the quantitative easing programme. However, the excitement generated by the potential for such a move has waned now that it also seems likely the Governing Council will opt to extend the programme’s duration significantly.

Meanwhile the GBP/USD exchange rate was stuck around opening levels as there was no notable data to propel the US dollar higher, but odds of an interest rate hike from the Federal Reserve in December remained high.

What’s coming up?

Chancellor of the Exchequer Philip Hammond is set to answer questions in Parliament this morning. There are several ways in which this could see the pound weaken. Hammond may comment on the state of Brexit negotiations, or warn of the consequences of a ‘no deal’ Brexit. Or he may suggest that the upcoming budget won’t contain many giveaways and that further austerity measures are needed.

The euro will spend the rest of the day reacting to the morning’s preliminary October PMIs from Markit. The French, German and Eurozone manufacturing, services and composite indices have just been released.

Markit PMIs are also due out for the US today. The manufacturing index is expected to creep higher, while the service measure is forecast to soften marginally. All together these movements are unlikely to be severe enough to affect the odds of an interest rate hike from the Federal Reserve in December.

Written by
Philip McHugh

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