- Pound afloat after positive trade news
- Eurozone interest rate decision in focus today
By Joe De Berniere
Pound afloat after positive trade news, but could dip further on growth figures and Brexit debate
Yesterday, the Pound continued to trade in its narrow path across the board on a very quiet day for data releases. To that end, the Pound was largely kept afloat following Tuesday UK trade data, when it was reported that the UK had achieved its first budget surplus in 16 years, a feat which was positively received. Sterling did drop slightly on the back of weak growth estimates, which are tipped to show a quarter on quarter slowdown, from 0.4% to 0.3%. Although minimal, a dip in national economic growth could damage the Pound – the finalised figures come out on Friday.
Another factor limiting the Pound is the uncertainty about an upcoming House of Commons debate on the UK after Brexit. Today, MPs will meet to discuss and vote on whether the UK should remain part of the EU customs union after Brexit. The vote will be non-binding. The government’s position is for the UK to leave any and all customs arrangements after Brexit, so if the majority of MPs back continued membership, we could see some further volatility for Sterling as it creates uncertainty and division between parties in the Commons.
Eurozone interest rate decision in focus today
In Europe, the focus today will be on the interest rate decision from the European Central Bank (ECB). No change in policy is expected, however, should Draghi strike an optimistic tone, we would expect the Euro to rally, while any dovish comments could prompt Euro weakness, as it would signal that perhaps the Quantitative Easing (QE) programme is destined to extend into 2019. Markets had been expecting Euro strength on the assumption the programme would end in September 2018.
Many analysts still think the Pound could improve against the Euro – largely because they dismiss Carney’s dampening of a May interest rate hike, but also suggest that today’s meeting will cause Euro weakness. There is still a chance that Sterling could creep up over the 1.15 level – a key level of resistance dating back to September last year.