Sterling didn’t step back in spite of the press concern over the 0.1% drop in retail sales reported for October. The growth was still 3.1% on the year, which is healthy by any standards, although the core data was slightly disappointing. In fact, Sterling gently strengthened through Thursday and ended the day in the high €1.16s and $1.28s. That is where the Pound is as we start Friday.
Signs of political shifts are the focus for UK news in the run up to the General Election. It seems from a new poll that more “working classes” are supporting the Conservative Party, rather than their traditional supporter base of “upper classes”. A survey by ComRes for The Daily Telegraph reported an eight percent increase in voters in the DE socio-economic group are willing to vote for the Conservatives in the 12th December election, compared to the previous election in 2017. In contrast, the number of voters in the AB group saying they support Boris Johnson’s party has fallen by six percent since they voted for Theresa May’s Conservatives in 2017, and the Centre for Social Justice has also found in their survey last week that support for Jeremy Corbyn’s Labour Party has fallen ten percent with voters on a total income below £17,000.
The week started slowly on the data and economic front, with Veterans Day in the USA and a number of public holidays across the globe to remember those we lost in past conflicts. This didn’t stop currency or stock markets from moving, however, or indeed stop politics from influencing these market movements.
The Conservative Party extended their lead in most polls after the Brexit party’s decision to stand down most of their candidates. Nigel Farage is suggesting the Tories should stand down their own candidates in constituencies where they haven’t won for 100 years to improve the Brexit party’s chances where they are fielding candidates. Either way, the Pound held on to its gains yesterday after the unemployment rate fell to 3.8%, but average earnings growth slowed to 3.6%; lower, but still more than double the rate of inflation. Speaking of which, we will get the UK consumer price inflation data this morning. Something like 1.7% is the most likely outcome. Sterling should maintain its strength unless the actual data disappoints.
The Pound has faltered following the Bank of England (BoE) vote – the 7-2 vote to leave interest rates at 0.75% came as a surprise, as Monetary Policy Committee Members (MPC) Saunders and Haskel voted for a rate cut. That is a clear sign of the economic uncertainty being felt by policymakers and this was reiterated by Governor Mark Carney in his commentary afterwards, when he said that a rate cut would be an option if the global slowdown continued and if there was further Brexit uncertainty. This lack of confidence meant that the Pound disappointingly dipped below 1.28 against the US Dollar.
Campaigning for the General Election has officially begun and the current UK Prime Minister, Boris Johnson, is on his way to Scotland to make a speech today. He is hoping for the Conservatives to win over the Scottish National Party (SNP) in Scotland to quash the chances of a new Scottish Independence vote. He is also warning in his rhetoric that voting for Labour in the election runs the risk of a potential two more divisive votes: a referendum on Scottish Independence and another EU Referendum.
The Bank of England publishes its latest Monetary Policy Committee (MPC) Minutes on Thursday, along with a report on monetary policy, in place of the usual quarterly inflation report. Markets do not expect much change in the UK’s inflation data, but expectations are growing of a decrease in interest rates. Whether this will be at Thursday’s meeting or the next is the question. Either report from the UK’s central bank could help or hinder the Pound, however, so markets will be watching for a range of signals and economic indicators on Thursday.
The first poll sin the UK elections show a 17 point lead for the Conservatives but the US President’s intervention on a radio phone-in show – for gawds sake – won’t be well received by the Tory leadership. He did mock Jeremy Corbyn, which would hav e cheered them up but he also questioned the EU-UK Brexit deal
Last night, Wednesday 31st October, the Federal Reserve delivered on the expected 25 basis points rate cut, but did maintain a hawkish tone. The wording of the statement was less conservative than previous meetings and currency markets will now be watching the next set of economic data very carefully in order to gauge when the next move will be made. For now, it looks like yesterday’s interest rate cut will be the last in the cycle. This was the third successive cut and although the market was expecting the news, the US Dollar has weakened. Global uncertainty is certainly weighing on the Dollar; until a trade deal is approved and until we see a pick up in the data, the weakness is likely to persist.