Economic Data, Brexit and Carney Line Up Against the Pound

The Pound continued on its downward trajectory on Tuesday, with sentiment towards Brexit and a dovish Bank of England Governor Carney influencing on the day.

Just a month ago, BoE Governor Carney had warned the markets of underpricing rate hikes over the remainder of the year.

In Tuesdays speech, Carey did not actually suggest that the BoE will be cutting rates any time soon. Carney did highlight the downside risks to the UK economy and global economies, however.

Expectations are for growth in the 2nd quarter to slow. Both global trade and uncertainty over Brexit remain negatives for UK growth near-term.

As the Conservative Party leadership race continues, the prospects of a no deal departure from the EU continues to rise. At the start of the week, news hit the wires of a number of Labour Party MPs looking to avoid voting in favor of blocking a no-deal Brexit. 12 opposition party MPs are reportedly in favor of Britain leaving the EU, with or without a deal.

Members of Parliament could end up having to vote on Theresa Mays negotiated.

That is if the Labour Party isn‘t able to muster the necessary support to block a no-deal Brexit. It is also assuming that Theresa May’s successor is unable to renegotiate with the EU, MPs would likely be given one last chance to prevent a no-deal Brexit.

For those looking for Britain to leave with a deal, Jeremy Hunt would be the one to vote for, though even Hunt would lead Britain out of the EU without a deal should no solution be in sight by the 31st October.

Interestingly, while Opposition Party leader Corbyn will be hoping for a lack of progress to force a vote of no confidence, division in the Labour Party ranks is also evident. As the deadline approaches, a greater division could play into the hands of the next Tory Party leader.

That wont help on the Brexit front, but would at least ease some political uncertainty. In the event of a no-deal departure, political stability would be a must…

For the Pound

Unless there is a material change in stance on Brexit by, either Johnson, Hunt or both, upside for the Pound will continue to be limited.

Brexit and political uncertainty coupled with particularly weak economic indicators don‘t bode well for the UK’s economic outlook.

With domestic consumption having provided much-needed support, todays service sector PMI will be of particular importance.

1st quarter growth was attributed to the 31st March Brexit deadline. Uncertainty over what lies ahead and softer demand will be a test.

BoE Governor Carney and members of the MPC will be wanting to stand pat on policy. The MPC has continued to state that Brexit remains the key focus near-term.

A material slowdown in the UK economy, however, could force the Bank of Englands hand early. A pre-Brexit move would certainly complicate matters…

At the time of writing, the Pound was down by just 0.01% to $1.25908.