Sterling (GBP): Brexit Volatility Likely to Pummel GBP Next Week

Sterling, Brexit and UK PMIs:

• Brexit discussions back with a bang as PM May tries to sell her plan.
• UK Services/Composite PMIs beat lowly expectations.

See how our Q1 2019 Trading Forecasts for GBP can help you when trading.

If you are interested in trading, or just curious about how and why market moves occur, we have recently produced a new guide – How to Start Trading: Top Tips and Guides for Beginners – to help you.

Sterling (GBP) Primed for the Next Round of Brexit Talks

The UK government will today begin publishing guidance on how the public can ready themselves for a no deal Brexit, in the latest attempt by the Prime Minister to force through her unpopular Brexit bill. The campaign is hoped to scare the population, and MPs, into backing away from a no deal Brexit, as the clock ticks down. A recent survey by the Economic and Social Research Council (ESRC) however has highlighted the unpopularity of the PM’s. In a two-choice vote – leave the EU without a deal or leave the EU with PM May’s proposed deal – nearly 60% of respondents were opposed to the PM’s deal. Next week, MPs return to Westminster to discuss Brexit ahead of a vote on PM May’s bill in the week commencing January 14. Before the vote expect to hear a cacophony of noise from both UK political sources and the EU, leaving Sterling at risk of short-term whiplash moves.

The latest Markit UK services PMI beat lowly expectations, highlighting just a modest rise in business activity and new work. Job creation fell to a 29-month low while business confidence sunk to its second-lowest level since 2009. According to Markit this suggests economic expansion of just 0.1% in Q4 2018.

“The service sector typically plays a major role in driving economic growth, but is now showing worrying signs of having lost steam amid intensifying Brexit anxiety. The final two months of 2018 saw the weakest back-to-back expansions of business activity since late-2012 and highlight how clarity on Brexit is needed urgently in order to prevent the economy sliding into contraction. Combined with disappointing growth in the manufacturing and construction sectors, the meagre service sector expansion recorded in December is indicative of the economy growing by just 0.1%.in the closing quarter of 2018,“ according to Markit chief economist Chris Williamson.

GBPUSD moves have been dominated by the US dollar so far this year, but this is likely to change as Brexit negotiations enter their most important period to date.

GBPUSD Daily Price Chart (March 2018 – January 4, 2019)

IG Client Retail confirms a negative picture for the GBPUSD. Retail are a beastly 66.6% net-long the pair, a bearish contrarian indicator. However, recent daily and weekly positional changes give us a mixed trading bias.

What is your view on Brexit – bullish, bearish or bored?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.com or via Twitter @nickcawley1.