Business rebound helps pound hold ground
Ken Odeluga September 9, 2019 3:25 PM
A growth surprise is helping sterling shrug off increasingly ferocious parliamentary battles
Sterling's sustained elevation following a 3% rebound last week received fresh impetus from unexpectedly resilient growth figures, even as increasingly acrimonious Brexit politics and soft underlying economic conditions keep the pound in check.
All in, the economy managed a flat performance in the three months to July rather than the slight fall forecasters pencilled in, though the risk of a further contraction remains after Q2 saw growth reverse for the first time since 2012. Britain’s dominant service sector unexpectedly rebounded into positive territory in July after a shock dip into negative the month before. That mini expansion looks to have underpinned gains in other smaller GDP components, like construction and factory output; the latter swung 0.3% higher when a deepening slowdown equating to a 0.3% fall on the month was forecast.
To be sure, the monthly resilience is out of step with the year’s deteriorating service sector trend. The downturn has been accompanied with stagnation in the usually robust housing market and the first signs of a change of sentiment among equally redoubtable UK consumers, after retail sales disappointed. Recent BOE data showed households beginning to worry about potentially damaging price rises, particularly in light of multi-year lows in consumer savings rates since the 2016 Brexit vote. Pressure looks to have resumed on businesses too, according to the more up-to-date PMI readings out last week.
Gradual softening is likely to limit monetary policymakers' choices in months to come regardless of Brexit. After some of his most optimistic comments on the likely post-Brexit period for months, BOE governor Mark Carney concluded that growth remains “Slightly positive, but close to zero.” That suggests another cap for the currency that's not coherent with the latest price action.
Cable has pulled further away from though is unlikely to have escaped the magnetic pull of last week’s around-three-year lows. Buyers would now ordinarily expect the grind through the region across roughly $1.22-$1.23 to have laid the groundwork for much needed protection in the days ahead. Two hourly tags towards the lower boundary of the range last Thursday—$1.2208 and $1.2212—corroborate it as ‘live’. With a 26th July ‘failure low’ at $1.23765 invalidated as GBP/USD consolidates Monday’s resumed up leg, it’s left to last week’s $1.2354 high to guard the $1.22/23 zone. For sellers, the chance that renewed weakness could take the rate down and out of the lower side of the zone will be tempting. If seen, the probabilities that follow-through could take cable back toward to high $1.20s at least, would rise.
GBP/USD – hourly
Latest Brexit developments
- Downing Street confirms Parliament’s suspension will begin tonight, though impact on sentiment has been limited as the government is set to lose a vote to hold an election by mid-October
- Suspension won’t start until two potential emergency debates have been held. 1. Jeremy Corbyn’s call to ensure the government respects the law preventing a no-deal Brexit 2. Former Conservative Attorney General Dominic’s Grieve demand for the government to publish no-deal planning
- The speaker has allowed both debate applications. If both debates take place, a very late vote is highly likely
- PM Boris Johnson signals more focus on the domestic agenda with further announcements on public spending likely
- Government lawyers are exploring ways for the PM to get around the new law stating that Brexit must be delayed if no deal has been agreed well ahead of deadline
Key data this week
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.