Pound plummets as markets brace for end-of-month adjustment

The pound was hit by significant losses yesterday as end-of-month repositioning triggered a major sell-off.

Sterling is static against most of its peers this morning, with only GBP/USD showing any real movement having slipped back to US$1.4140. This sees GBP/EUR holding steady at €1.1399, GBP/CAD flat at C$1.8241 while GBP/AUD and GBP/NZD are both muted at AU$1.8459 and NZ$1.9508 respectively.

Today will see the release of the latest US GDP figures, with the possibility of an upwards revision to fourth quarter growth potentially causing the US dollar to strengthen…

What’s been happening?

The pound suffered a sharp sell-off on Tuesday, with the decline attributed to market repositioning at the end of the month.

Economists suggested that the sudden movement also reflected the pound’s precarious position post-Brexit, which sees GBP react more dramatically to both positive and negative factors.

However the pound’s sell-off appeared to be a little overdone as Sterling was able to snap back in the afternoon, with analysts warning the currency was undervalued as it struck its lowest levels in nearly a week.

The GBP/EUR exchange rate fell over half a cent in early trade yesterday before recouping most of its losses later in the session, with the euro feeling the drag of some disappointing business confidence figures from the Eurozone.

Meanwhile the GBP/USD suffered a particularly heavy sell-off on Tuesday as broad-based weakness in the pound as well as renewed confidence in the US dollar saw the pairing plummet from a six-week high.

The rally in USD sentiment was largely prompted by optimism that a trade war between the US and China could be averted, thanks to concessions made by China.

What’s coming up?

The pound may look to extend its recovery this morning as the CBI publishes its monthly snapshot of the retail sector.

Economists are optimistic that today’s data will reveal that retail activity picked up this month, possibly helping to strengthen the GBP exchange rate. 

The euro meanwhile may struggle to build following this morning’s upbeat German consumer confidence figures, due to a lull in notable economic data. Germany will publish its latest employment and inflation figures tomorrow.

The US dollar may strike higher this afternoon, with the release of the final US GDP figures for the fourth quarter.

Economists suggest that the previous estimate that growth will have fallen to 2.5% may have been a little too gloomy and are now forecasting that the US economy is more likely to have expanded 2.7% at the end of 2017.