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Brexit Briefing: GBP Jumps as UK Economic Data Beat Forecasts

Brexit Briefing: GBP Jumps as UK Economic Data Beat Forecasts

Martin Essex, MSTA,

Talking Points

- UK industrial production and trade figures belied the assertions of those against the UK leaving the EU that the UK economy would crumble after the vote in favor of Brexit.

- Across the English Channel, concerns persist about the chances, albeit low, of Marine Le Pen winning the upcoming French Presidential election.

- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for the week on the DailyFX Webinar Calendar.

Positive UK economic data on industrial production, manufacturing output and trade, released Friday, once again highlighted the resilience of the British economy in the wake of the vote in a national referendum in favor of the UK leaving the European Union – giving the British Pound a boost.

Industrial production and manufacturing output in December both increased by more than expected by forecasters on both a month/month and a year/year basis. The deficits on trade in goods in December were lower both overall and to countries outside the EU, and construction output in December increased by more than predicted both month/month and year/year.

In response, EURGBP fell back before recovering some of the lost ground, while GBPUSD jumped before losing some of its gains.

Chart: GBPUSD One-Minute Timeframe (February 10, 2017)

Almost all the November figures were revised to show better numbers than previously released and the only flies in the ointment, according to the Office for National Statistics, were that the improvement in the trade figures was due largely to exports of erratic items such as gold and aircraft parts and there was little evidence that the fall in the value of the Pound since the Brexit vote was helping bring down the trade gap.Excluding volatile erratic items, the UK’s goods trade deficit widened in December.

Despite the stronger-than-expected figures for December, the ONS said it was not revising its preliminary estimate that the UK economy grew by 0.6% in the fourth quarter of last year. However, the risks are now firmly to the upside.

Meanwhile, concern is growing in the markets about the policies of Marine Le Pen, the right-wing National Front candidate in this year’s French Presidential elections. Polls suggest that she would win the first round but lose in the second. However, given the recent poor record of political polls, there’s plenty of attention on her plans to replace the Euro with a basket of new national currencies, revoke the independence of the central bank and hold a Frexit referendum on France’s EU membership.

If Le Pen is elected, France could therefore follow the UK example and leave the EU, which would probably mean the end of monetary union. Moreover, Bloomberg reported this week that her chief economic adviser Bernard Monot met Bank of France Governor Francois Villeroy de Galhau in September and set out her party’s plans to take control of the central bank and use it to finance government spending.

Markets

Index / Exchange RateChange (Exchange Hours/GMT Session Rollover)Market Close/Last
FTSE 100+0.28%7,249
DAX+0.13%11,658
GBP/USD-0.03%1.2494
EUR/USD-0.16%1.0642
EUR/GBP-0.07%0.8519

UpcomingUK/EUEvent Risk

EventsDate, Time (GMT)ForecastPrevious
Germany Wholesale Price Index (MoM) (Jan)Feb 13, N/A1.2%
Germany Wholesale Price Index (YoY) (Jan)Feb 13, N/A2.8%
European Commission Economic ForecastsFeb 13, N/A

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

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