Sterling has been suffering another rocky week against the euro over the past week or so. The reasons for the ongoing fluctuations are various. Last week, the announcement of very sluggish economic growth in the first quarter, the lowest for about ten years, didn’t delight the markets. The 0.1% number was apparently driven by lower than expected activity in the construction industry and also the poor weather leading to a high street retail slowdown. Although the weather doesn’t adequately explain why online sales also had a poor quarter.
Consumer borrowing also decreased, which probably had a bigger impact on retail. The growing unlikelihood of an interest rate hike by the Bank of England also disappointed markets. And on Tuesday the numbers were further impacted by poor manufacturing numbers by UK industry.
The resignation on Sunday night of the home secretary Amber Rudd also had an impact. Normally a ministerial departure isn’t of much significance but in this case it did serve to further highlight the weakness of the May administration which doesn’t enjoy a parliamentary majority. Needless to the prospect of a Labour government led by Jeremy Corbyn isn’t something that delights the capitalists either.
The departure of one of Theresa May’s few pro-EU allies within her cabinet rippled across currency markets yesterday morning, with investors concerned this could tip the balance in favour of those in the government who favour a more hard-line approach to Brexit.
– Phil McHugh, Currencies Direct
And thirdly, the Brexit negotiations hang in the balance. Two crucial aspects of the departure deal remain intractable and unresolved: future arrangements for the customs union are proving to be a sticking point and the future nature of the UK border with Ireland is still unclear. EU negotiators of have been critical of the UK government’s approach.
If the Brexit issues could be equitably resolved sterling would likely get fairly decent boost against the euro.
From a merchant perspective, the continuing weakness of the pound, specifically against the euro, is a double edged sword. It naturally makes British goods more attractively priced to overseas shoppers and a number of Tamebay readers have noted that they are enjoying good exports at the moment to the EU. But equally, it brings with it a cost if you’re importing from overseas.
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