Brexit 'reset' good news for consumers, but the Pound is surprisingly seeing no immediate benefit from the change..
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| During the long Brexit negotiation phase, the Pound would face immediate volatility on the slightest of headlines and rumours. Yesterday however, an announcement of the UK becoming closer to Europe (better food and drink policy mainly) saw no GBP gain.
In fact, the £-€ rate looks to be somewhat compressed at the moment, but the next couple of days could be about to change that..
Tomorrow the UK is announcing its inflation figures for April, where a sharp uptick is expected on the headline rate (2.6%-3.3%). We believe the increase is already priced into the Pound, but as always any surprises may see volatility. The more important figure as far as the BoE are concerned is core inflation, which is expected to hike more conservatively from 3.4% to 3.6%.
Then on Thursday, we have the majors releasing their latest PMI data, which saw the EU easily (and surprisingly) beat the UK last time out. If further divergence is created, volatility will occur.
Finally, earlier today the Bank of England's Chief Economist Huw Pill, gave his 2-cents on why he voted to skip a rate cut this month. "While the underlying disinflation process remains intact, the quarterly pace of 25bp rate cuts seen since last summer is too rapid given the inflation outlook".
He continues to explain that he doesn't call for an end to the process, but rather a slowdown due to Trump tariffs and a new business environment in the UK creating uncertainty. Some analysts see no further rate cut this year, some just one more and others 2. All scenarios involve a change to GBP's price.
As we know, the higher the interest for a major economy, the higher valued its currency is. But the only way is down when it comes to a direct comparison with the EU, which should be a concern for later in the year and next year in particular. |
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