Pound slips from five week high, UK government loses Article 50 appeal

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24 January 2017

Written by
Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

Sterling was one of the best performing major currencies in the world as markets opened for the week on Monday, with the currency rallying to a five-week high against the US Dollar ahead of this morning’s highly anticipated Supreme Court ruling.

T
he Supreme Court, as expected, announced this morning that it had rejected the Government’s appeal. This ensures that parliamentary approval will be required before the formal Article 50 process can take place, of which sets the two year clock ticking on Britain’s process of leaving the European Union.

However, with the outcome fully priced in, the Pound briefly slipped up on the back of the announcement after 3 of the 11 voting members voted in favour of the government. Moreover, it was unanimously ruled that the Scottish Parliament and Welsh and Northern Ireland assemblies did not need a say, which could remove a potential stumbling block to Theresa May’s plans to trigger Article 50 before the end of March.

Even without this stumbling block, we think the March date remains in doubt. A potential delay in the Article 50 process would undoubtedly provide decent support for Sterling in the coming weeks.

Across the pond, the sell-off in the US Dollar continued for another day on Monday as investors become increasingly unenthused by President Donald Trump’s protectionist rhetoric and lack of clarity over future fiscal spending plans.

Trump’s relatively bleak and confrontational inauguration speech on 20 January disappointed investors hoping for a repeat of his upbeat victory speech in November. The Dollar was subsequently sent lower across the board yesterday, falling to its weakest position against the Euro since early December, while depreciating by over 1% against the Japanese Yen.

Major currencies in detail

GBP

Anticipation that the Supreme Court would reject the Government’s appeal today sent Sterling 0.4% higher against the US Dollar on Monday.

Investors also continued to buy into the Pound yesterday following last week’s impressive inflation and wage growth data which suggested that the next move in the Bank of England’s benchmark interest rate was much more likely to be up, rather than down.

The latest poll of economists from Reuters suggest that the Bank of England are very unlikely to alter their main rate at all, at least until 2019 at the earliest. 20% of those surveyed expected the BoE to hike rates this year, with just 15% now forecasting another cut at some point during the remainder of 2017.

This morning’s Supreme Court ruling will undoubtedly drive trading today. The initial estimate of fourth quarter GDP on Thursday will be the main economic data release in the UK this week.

EUR

The single currency continued its impressive recovery against the US Dollar yesterday, rallying 0.2% against the greenback on the back of broad Dollar weakness.

News out of the Eurozone was relatively sparse yesterday. Consumer confidence increased this month, roughly in line with expectations. Confidence among the 19 country strong Euro-area rose to -4.9 from -5.1 in December, its highest level in nearly two years. This improvement in confidence was largely supported by a general improvement in economic conditions in Europe which has seen a steady decline in unemployment and a broad uptick in business activity.

USD

Donald Trump’s slightly underwhelming and protectionist inauguration speech on Friday continued to weigh on the Dollar on Monday. The US Dollar index fell 0.2% over the course of the London trading session yesterday.

With economic news few and far between on Monday, Dollar traders continued to remain focused on political developments. So far, the Trump administration has done little to reassure nervous investors that economic policies will be more growth orientated and less protectionist focused.

The next few days in the US also looks relatively void of any major economic data. The first estimate of fourth quarter GDP on Friday will be the main economic release. The manufacturing PMI in the US this morning is expected to show a modest increase, while existing home sales are forecast to have slipped up in December.

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