Support for Sterling Continues to Fade
November 10th: Highlights
- Pound drifting as negative factors drive sentiment
- Chances of Brexit breakthrough fading.
- PM struggling to exert authority.
Data to confirm Carney’s fears
The gap between incomes and prices will widen further as inflation reaches 3.2% and wage growth remains benign. The British economy is facing a difficult period as traditional supports disappear to be replaced by headwinds from almost every direction.
Over the course of this week the pound has consolidated at lower levels without ever looking like recovering the ground lost following the “dovish hike”. Support versus the dollar remains at just above the pivotal 1.3000 level. However, a close today below 1.3100 would be produce a bearish signal for traders since it would be the first time since April that the it has closed a week below its 21-week moving average.
Retail sales data for October will also be released next week. Following the fall in like for like sales by 1% a similar fall will be a signal that the consumer is starting to struggle just as the most important period of the year for retailers begins.
Brexit Talks “going through the motions”
Versus the single currency, Sterling has recovered a little as monetary policy issues dog the Euro. In fact, unless there is a dramatic shift in Brexit talks today, it is likely that the weekly close will be very similar to every weekly close for the past month.
The nature of monetary policy in the Eurozone is still taking shape as it is still in a relatively experimental state since it is still less than twenty years old.
The face of the ECB, the President, started as a compromise with the appointment of a Dutchman; Wim Duisenberg. It then moved to a Frenchman with the appointment of Jean-Claude Trichet and on to Mario Draghi the current incumbent. The past two appointments have been labelled “anyone but a German” but that mantra is likely to be destroyed with the likely appointment of the hawkish Bundesbank President Jens Weidmann in late 2019.
May struggling to manage her team.
The recently departed Priti Patel was another Brexiteer who will now add her weight to the backbench rebels who will make the passing of the Brexit Bill through Parliament as difficult as possible.
The fact that Theresa May is still Prime Minister will surprise some. The only headwind the pound isn’t currently facing is the possibility of a change of Prime Minister or a General Election. However, given the fragility of a minority Government that could change very quickly. It must be said that May’s position is stronger than that of her Government since the role of Prime Minister is considered, in light of current events, to be something of a poisoned chalice.
Having to balance remain versus leave voices in her Cabinet has proven difficult as ministerial positions haven’t always been granted based on talent but more on the candidates Brexit views.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”