I got 99 problems… and Brexit will be Won?
Or will it?! The 99 days up until the 29th March 2019, the proposed Brexit date under an unamended Article 50, will each represent a huge challenge to the Pound, and a potential problem with the defiant Prime Minister, Theresa May. The Pound Sterling endured increased trading volumes today yet managed to maintain reasonable levels of volatility and evade excessive price action. Retail sales data kicked off the morning in the United Kingdom, posting performances both above the previous reading and, critically, significantly above consensus expectations. Concerns of weak sales performance in recent days have hit the value of a number of household-name companies, most notably ASOS, a stock that fell by more than 40% in one day this week. The improved outlook for economic activity allowed the Pound to secure a foothold from which to attempt to appreciate.
At midday today, the Bank of England published its latest interest rate decision. As expected, the Bank left interest rates on hold in a unanimous 9-0 vote within the Monetary Policy Committee of the Bank. However, Sterling threatened to fall back from the footing that retail sales data had afforded to the domestic currency when the Bank also revealed in its minutes that there was a “considerably” higher uncertainty surrounding the UK’s exit from the European Union. Despite the hazy picture that the Bank painted surrounding the date scheduled for 99 days’ time, its forward guidance remained largely stable: under an orderly Brexit there is scope for the Bank to raise rates. In a busy day, the Pound closed almost exactly where it had started off.
In the United States overnight, a hike-decision from the FOMC did prevent a mass exodus from US Dollar positions, proving that the Fed won’t bow down to political pressure from the White House. However, its forward guidance and famous ‘dot-plot’ – the publication that anonymously surveys policy setters’ expectations for future monetary policy – did show one less hike in 2019 than it has previously attested to (2 in 2019 versus 3; consistent 1 hike in 2020). The Fed’s admonition that the future path of monetary policy will be determined by the robustness of economic data is what caused the sell-off in today’s US Dollar in European markets. Introducing a previously non-existent degree of uncertainty to US monetary policy, the Dollar’s main driver of strength (its newfound interest rate differential) was brought into question.
Discussion and Analysis by Charles Porter
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