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Brexit Briefing: Sterling Holds Its Ground as Soft Brexit Hopes Rise

Brexit Briefing: Sterling Holds Its Ground as Soft Brexit Hopes Rise

Martin Essex, MSTA,

Talking Points

- The British Pound is reasonably firm, albeit against a weak US Dollar, as UK government ministers continue to talk up a market-friendly soft Brexit.

- That’s despite inflation and GDP data that make a tightening of UK monetary policy next week extremely unlikely.

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The British Pound is continuing to hold its ground, albeit against a US Dollar that has been sliding steadily throughout 2017 so far, as UK government ministers persist in talking up a market-friendly soft Brexit.

The latest was Chancellor of the Exchequer Philip Hammond, who said in a BBC interview Wednesday that a Brexit transitional deal, which would avoid the “in one day out the next” scenario, would help give business certainty. “One of the ways of kick-starting stronger growth in the economy is to give businesses and consumers a bit more certainty about the next few years,” he said, adding that “a transition period, an interim structure with the European Union, would give businesses and consumers that degree of certainty.”

His comments helped support the British Pound, which has been steadier against the Euro this week and has firmed a little against the Dollar.

Chart: GBPUSD One-Hour Timeframe (July 20-26, 2017)

Chart by IG

This steady performance has come despite economic data that make a tightening of monetary policy by the Bank of England next week less and less likely. Last week, the Office for National Statistics reported that inflation fell unexpectedly to 2.6% year/year in June from 2.9% the month before. Today it reported that economic growtheased year/year in the second quarter of 2017 to 1.7% from 2.0%.

Together, the figures make it almost certain that the Bank of England will leave interest rates unchanged at 0.25% next Thursday and its asset-purchase target at a same-again £435 billion despite recent more hawkish comments from some members of the central bank’s monetary policy committee.

Markets

Index / Exchange RateChange (Exchange Hours/GMT Session Rollover)Market Close/Last
FTSE 100+0.23%7,452
DAX+0.30%12,300
GBP/USD+0.18%1.3052
EUR/USD-0.09%1.1635
EUR/GBP-0.28%0.8916

Upcoming UK/EU Event Risk

EventsDate, Time (GMT)ForecastPrevious
German GfK Consumer Confidence (Aug)Jul 27, 060010.610.6
Euro-Zone M3 s.a. (YoY) (Jun)Jul 27, 08005.0%5.0%
CBI Retailing Reported Sales (Jul)Jul 27, 10001012

--- Written by Martin Essex, Analyst and Editor

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

Follow Martin on Twitter @MartinSEssex

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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