News & Resources

Market Analysis

Latest Insights
Press Releases
Latest Insights

UK Weekly Market Analysis
GBP Eyes Post-Brexit Lows Versus Euro & USD

by David Starkey | August 12, 2016

It was a quiet week on the data front, but that hasn’t stopped it from being another tough week for the British pound. A lack of positive data has left markets free to simmer on existing themes, which has not been constructive. Sentiment has weighed heavily on the currency as expectations for domestic economic softness grows following last week’s Bank of England (BoE) alarm bells. Against the Greenback, GBP dredged 1-month lows this week, the pair testing the waters below 1.30. Should buying interest for sterling remain subdued, the pair could slide towards post-referendum lows of 1.2800.

Performance against the euro has been equally disappointing this week for the British pound. GBPEUR plunged back to its post-Brexit/ 27-month lows this week as soft GBP sentiment was compounded by stronger than expected German Q2’16 GDP results. Prior to and in the immediate aftermath of Brexit an argument had been made that sterling’s losses against the euro would be tempered due to the contagion risk. That has not been the case thus far as recent data suggests that the greatest economic impact of Brexit remains for the moment contained to the United Kingdom. Anecdotally it feels like currency markets are waiting for the UK to trigger Article 50 before turning against the euro.

Next week has a few events on the British data calendar worth taking note of.  Wednesday sees employment statistics, expectations for which are as follows: Claimant Count (+5.0k expected vs. +0.4k previous), Average Earnings (+2.5% expected vs. +2.3% previous), and Unemployment Rate (4.9% expected vs. 4.9% previous). Early post-Brexit private survey data and sentiment results highlight that corporate spending is likely to be curtailed going forward as economic uncertainty weighs on the minds of CEOs & CFOs. Along with capex, hiring is one of the key areas to be impacted by this outlook. As such markets will be approaching next week’s data with caution.

After Wednesday’s employment numbers, on Thursday the July British Retail Sales number will be announced. The consensus forecast calls for a mild rebound to +0.3% from last month’s -0.9% outcome. Brexit is expected to take a bite out of consumer spending much the way it is expected to impact corporate level spending. So like the Wednesday employment statistics, markets will be guarded against Retail Sales disappointment.

In addition to Retail Sales and labor statistics, on Tuesday the British data calendar has the July Consumer Price Index (CPI) result. Expectations are for a +0.5% reading, matching last month’s number. Due to Brexit and the related historic sell-off in GBP a pop higher in inflation is expected over the coming months. Despite this, there is no expectation that the BoE will not hike rates to combat, which is the key relationship that often drives GBP strength on the back of positive CPI numbers.

At the Quarterly Inflation Report last week the BoE made it clear that its priority is stable economic growth and that it is comfortable letting inflation pop higher unchecked, just as it did during the global financial crisis. This means that even if CPI bounces higher next week the BoE will keep interest rates low to stimulate spending. Given BoE guidance, CPI will likely take a back seat over the coming months to GDP and other economic indicators. On the Topic of inflation, next Tuesday the American July CPI number will be published also. Expectations are for 0.0% against a +0.2% result for the two prior months. While currency markets might be looking past British CPI, but that is not at all the case with its peer across the Atlantic. American GDP numbers proved disappointing recently, however employment statistics have been resilient. As such CPI, which is the Fed’s favored measure of inflation, might be the difference maker for an interest rate hike. Financial markets have about a 50% chance of a hike by the end of 2016 priced in. As such there is likely to be a high degree of anticipation and volatility surrounding Tuesday’s release. A negative result could be a lifeline for GBPUSD after two tough weeks.

Rounding out the busy data week is the Minutes from the July US Federal Reserve meeting and policy update. The meeting occurred before the recent strong employment statistics and Q2’16 GDP disappointment, so the minutes won’t capture their impact on the outlook. However, currency markets will nonetheless be sensitive to the tone of the policy committee and what area they are particularly sensitive to.

To receive our UK market analysis direct to your inbox subscribe here!

“Cambridge Global Payments” is a trade name, which in this document refers specifically to one or more of these legal entities: Cambridge Mercantile Corp., Cambridge Mercantile Corp. (U.S.A.), Cambridge Mercantile Corp. (Nevada), Cambridge Mercantile (Australia) Pty. Ltd.

Cambridge Global Payments (“Cambridge”) provides this document as general market information subject to: Cambridge’s copyright, and all contract terms in place, if any, between you and the Cambridge entity you have contracted with. This document is based on sources Cambridge considers reliable, but without independent verification. Cambridge makes no guarantee of its accuracy or completeness. Cambridge is not responsible for any errors in or related to the document, or for damages arising out of any person’s reliance upon this information. All charts or graphs are from publicly available sources or proprietary data. The information in this document is subject to sudden change without notice.

Cambridge may sell to you and/or buy from you foreign exchange instruments (including spot and/or derivative transactions; both kinds are here called “FXI”s) covered by Cambridge on a principal basis.

This document is NOT: 1) Advice of any kind, or 2) Approved or reviewed by any regulatory authority, or 3) An offer to sell or a solicitation of an offer to buy any FXIs, or to participate in any trading strategy.

Before acting on this document, you must consider the appropriateness of the information, based on your objectives, needs and finances. For advice, you must contact someone independent of Cambridge.

Certain FXIs mentioned in this document may be ineligible for sale in some locations, and/or unsuitable for you. Contact your Cambridge representative for further information regarding product availability/suitability before you enter into any FXI contract.

FXIs are volatile and may cause losses. Past performance of a FXI product cannot be relied on to determine future performance.

This document is intended only for persons in Canada, the US, and Australia. This document is not intended for persons in the UK or elsewhere in the EEA. In Australia, this publication has been distributed by Cambridge Mercantile (Australia) Pty. Ltd. (ABN 85 126 642 448, AFSL 351278); for the general information of its customers (as defined in the Corporations Act 2001). This entity makes no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law.

Fees may be earned by Cambridge (and its agents) in respect of any business transacted with Cambridge.

The document is intended to be distributed in its entirety. Unless governing law permits otherwise, you must contact the applicable Cambridge if you wish to use Cambridge services to enter a transaction involving any instrument mentioned in this document.

© Copyright 2018, Cambridge Mercantile Corp., ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Cambridge Mercantile Corp. See for contact details.