Sterling rises from lows despite IMF cutting growth forecasts

Poor growth forecasts for the UK weren’t enough to stop GBP from rising against many of its peers yesterday.

Sterling is on soft form this morning as markets await the evening’s speech from Bank of England (BoE) official Andy Haldane. GBP/EUR has fallen to €1.1174, while GBP/USD is holding opening levels at US$1.3029. GBP/AUD is hovering around AU$1.6408, GBP/NZD at NZ$1.7511 and GBP/CAD at CA$1.6289.

Bank of England (BoE) Chief Economist Andy Haldane is due to speak later today. Read on to find out why this could be a big event for pound exchange rates...

What’s been happening?

The pound was mostly on the rise yesterday, although there was no domestic data to provide support.

In fact, by rights the pound should have been declining, given that the International Monetary Fund (IMF) cut the UK’s growth outlook this year. As part of its latest World Economic Outlook the Fund lowered its expectations for UK GDP from previous estimates of 2% to 1.7%. It kept the outlook for next year at 1.5%.

Although this is a negative, it has piled the pressure on the government to secure the best possible deal from the EU for Brexit. This could help increase the argument for a ‘soft Brexit’ or a transitional deal.

Additionally, after crashing to multi-week or multi-month lows before the weekend against a number of its peers, the pound has become an attractive prospect this week for markets, who are snapping up a bargain before Sterling recovers.

The IMF also updated its forecasts for the Eurozone and the US. The Fund’s economists now expect that the Eurozone economy will grow 1.9% this year; up 0.2% on its previous estimates.

This was not enough to protect the euro from weakening on the back of disappointing PMIs from survey firm Markit. Business activity in the Eurozone’s private sector was found to have slowed by more-than-expected during July.

Growth forecasts also weighed on the US dollar, with the IMF stating it now expects growth to remain at 2.1% for the next two years, compared to earlier projections of 2.3% and 2.5% respectively.

What's coming up?

The Confederation of British Industry (CBI) will release its latest survey data this morning. The business optimism, trends total orders, and trends selling prices indices will reveal how the manufacturing sector has performed in July.

Bank of England (BoE) Chief Economist Andy Haldane is due to make a speech today. Haldane recently surprised the markets by switching to ‘camp hike’, but since then economic data has been disappointing. Haldane was one of the most pessimistic members of the Monetary Policy Committee (MPC), so it will be interesting to see if he has returned to backing a rate freeze.

German IFO survey data will be released shortly. Forecasts are for the business climate, expectations, and current assessment surveys to all show a weakening in sentiment.

After a quiet week previously, the US data calendar sees the return of high-impact releases this week. Today is the turn of July’s consumer confidence figures, which are expected to weaken. The US dollar could therefore continue on the general lacklustre trajectory it has followed of late.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.