Good morning,

Yesterday provided the most obvious example of just how frustrating it is to analyse and understand how the pound trades; an extended rebound whilst the dust had seemingly settled, with analysts expecting a bounce off of the symbolic lows of 1.08 on GBPEUR and 1.2180 on GBPUSD.

However, at around 13.30GMT, GBP took a wild lurch to the downside off the back of news a general election is to be called on November the 1st, a mere few hours after a possible no-deal Brexit outcome on the 31st.
The dust settled on the story over the course of the day – mainly as there was no immediate validation of the claim – but the fact GBP can plunge half a cent on rumour alone highlights clearly that political volatility is very much here to stay for the pound, which is possibly exacerbated by a slew of data being released at 9.30 this morning.

Whist positive data releases have offered the pound temporary gasps for air, they have been few and far between. Sadly, that means that, when less than encouraging data is released, the GBP suffers even more than expected – from bad to worse. The GDP figure is expected to stagnate, manufacturing slide from stagnant to -1.1% and industrial production dip from 0.9% to -0.2%. In essence, if the predicted numbers, or worse, are confirmed, the UK will be entering the final straight to a possible no-deal Brexit teetering on technical recession.

Across the pond, President Trump renewed his attack on what he sees as an over-valued dollar; announcing “They have called it wrong at every step of the way, and we are still winning. Can you imagine what would happen if they actually called it right?”

Whilst these online outbursts are hardly a new phenomenon for the president, the debate rages on the sidelines with regards to their seemingly increasing effectiveness. In normal times, the head of the executive would never seek to interfere with central bank policies, however, these are far from normal times, and the question posed now, is how independent can the Fed remain in the face of a global trade war?

With regards to trade wars, as mentioned in my article yesterday, “More fronts open in the global trade war”, another two economies announced measures aimed at remaining competitive after being dragged into the escalating global trade conflict. Denmark is now offering negative rate, or flat rate, mortgages, essentially allowing investors who are willing to lend funds for 30 years to achieve 0.5% in return and increase homeownership – creating possible bubble-like conditions in the housing market.

Germany provided a sizeable shot in the arm for EUR as news began to filter out that it could loosen it famously balanced books and issue new debt to finance green energy projects – leading to speculation extra cash will be made available for other projects, regardless of if the Bundesbank is in surplus or not.

It can be rather overwhelming to attempt to consider the many known, and in most cases, unknown factors which affect currency prices – especially in such volatile global conditions. It is always worth contacting your account manager to explore what is going on in the markets, as with GBP especially, price spikes can be dramatic and severe as seen yesterday. Give us a call before the weekend to explore ways of guarding yourself in the market and getting a detailed overview of what is going is putting your transfers at risk.

Have a great weekend.

Author: Joshua Haden-Jones, Private Dealing Account Manager