Monthly Wrap: GBP – Pound plummets from post-Brexit high as economic outlook softens
Philip McHugh May 2nd 2018 - 2 minute read
Key takeaways:
– Doubts cast over a May rate hike, weakening the pound
– First quarter GDP reveals UK economy expanded at only 0.1% at the start of 2018
– GBP Monthly lows: €1.13, $1.36, AU$1.71, NZ$1.86, C$1.67
– GBP Monthly highs: €1.15, $1.43, AU$1.78, NZ$1.94, C$1.75
April was a mix of incredible highs and even more notable lows for the pound, spurred on by fluctuating expectations of a possible rate hike from the Bank of England in May.
This was most evident in the GBP/USD exchange rate which soared to a post-Brexit high in mid-April before collapsing to a three-month low at the start of May.
It was a relatively slow start for the pound last month however as lacklustre growth in the private sector saw Sterling struggle to make any real headway against its peers.
Things were kicked up a gear in the second week of April however as the Bank of England’s (BoE) Ian McCafferty suggested the bank must not ‘dally’ in raising interest rates.
This prompted the odds of a May rate hike from the BoE to push above 80% and helped Sterling to strike a multi-month high against many of its peers.
The pound’s gains began to unravel also immediately however as some disappointing wage growth and an unexpected fall in inflation prompted many investors to voice doubts over a May rate hike.
These concerns were reinforced by comments by Mark Carney, with the BoE Governor indicating the bank could delay its next hikes, suggesting it was ‘conscious that there are other meetings over the course of this year’.
The UK’s latest GDP figures struck the final blow to Sterling in April, as they revealed the UK economy grew only 0.1% in the first quarter of 2018; the slowest pace of expansion since 2012.
So how may the pound fare over the coming month?
Well it appears the downtrend in Sterling is likely to continue in the first half of May as some lacklustre PMI figures indicate economic growth in the second quarter will remain subdued.
The main focus for investors this month will of course be the Bank of England’s latest rate decision on 10th May.
With an immediate rate hike appearing to be off the table, the focus will now be on the Monetary Policy Committee’s (MPC) outlook for the coming months.
This could see the GBP exchange rate continue to slide if policymakers decide to adopt a wait-and-see approach to the next rate hike.
The second half of the month could offer some respite for the Pound however, starting with the publication of March’s labour report, with a rise in wage growth likely to be welcomed by markets.
The UK’s latest CPI figures may also lend some support to Sterling, if inflation is shown to have ticked higher in April.
Written by
Philip McHugh