Home > Resource Hub > Daily Market News > Sterling sellers should have contingency plans for 2016

Sterling sellers should have contingency plans for 2016

Sterling sellers should have contingency plans for 2016

Yesterday the BoE voted 8-1 to leave the base rate and Asset Purchase Facility unchanged again. The tone of the statement was soft, but not that much different from December and from the November inflation report. Recent events, domestically and externally, suggest slightly lower inflation short-term, but the MPC still expects inflation to return to target at the end of the policy horizon given current market curves. Sterling rebounded modestly versus the US Dollar & Euro after the announcement.

The Pound is paying the price for planning to hold a Brexit referendum before its key trading partner, the EU, has recovered as an exports destination or source of income from assets invested there. George Osborne has added to uncertainty by adding that the UK Treasury is 100% focused on staying in the EU; therefore no contingency planning for a Brexit as yet. Disappointing economic data, inflation being very weak, the market pushing back expectations about interest-rate hikes and political issues this year all mean you should speak to your account managers to plan for worst case scenarios for the Pound.

The ECB Monetary Policy accounts yesterday didn’t cause too much of a stir in regards to the Euro rate, but it has kept the door open for a further rate cut, or extension to the end date of the current QE programme. The account showed that there was agreement that more policy measures are required as the target inflation rate of near 2% is unlikely to be reached in the original time frame. Some members have expressed their support for a 20bps deposit rate cut, and this would be the most likely next monetary policy option. The Euro did see a surge against Sterling earlier in the day however, peaking at 1.3153 shortly after German Real GDP reading came in at 1.7%, 0.1% above market expectation.

Data focus today will be from the US on Retail Sales, Producer Price Index, Industrial Production and consumer sentiment as they are likely to influence market perceptions of the state of the US economy and the Fed’s hiking cycle. Retail sales are expected to have had another disappointing month with a drop of 0.2% compared to the month before. Despite the FOMC remaining on course to continue to increase borrowing-costs over the coming months, a slowdown in private sector consumption which is a key driver of growth and inflation, may encourage the central bank to implement a wait-and-see approach come January 27 at the next interest rate decision.

Share this case study
Set yourself up in minutes, make payments the same day: it’s free, easy and without obligation.