It’s an interesting day ahead for the Pound exchange rate, not only is Sterling still dealing with the aftermath of last night’s political vote, but the British currency also has to cope with a slew of influential economic data. Sterling has been rising across the board against other currency majors on Wednesday morning, as the prospect of a no-deal Brexit, or indeed any Brexit at all seemed to ebb.
It’s fair to say Brexit and UK political developments will be the main event for the British Pound exchange rate today and in the near future, but investors will be keen to look at underlying economic fundamentals in order to see how political upheaval has impacted the UK economy, and make central bank rate hike predictions.
Sterling began yesterday’s trading in a relatively stable position, even making gains against a host of other majors. Sterling’s buoyancy was attributed to the likelihood that a chaotic exit from the European Union was reduced, but as the Brexit vote approached, there was cause for concern.
As the session drew on, Sterling began to tumble lower, red across the board. Plenty of news reports were circulating, but one of interest suggested the UK couldn’t revoke Article 50 in a bid to buy more time for negotiation, and would have to show the EU significant signs that it was contemplating remaining within the EU if it wanted to do this. Otherwise, an extension would be the only option.
Bank of England (BoE) Governor Mark Carney Due to Testify Today
Today will see Bank of England (BoE) Governor Mark Carney testify on the central bank’s financial stability report. However, any comments on the result of yesterday’s vote, and the central bank’s actions moving forwards could add further volatility to Sterling.
UK Inflation Date Ahead – GBP Sensitive
Meanwhile, the UK’s Consumer Price Index (CPI) will be released, and while the core inflation reading is expected to remain stable at 1.8% on the year in December, the non-core measure is forecast to fall from 2.3% to 2.1%.
Update: BoE’s Carney says Pound’s Rebounding on Article 50 Extension Possibilities
The UK’s inflation rate fell in line with forecasts – it’s lowest level in almost two years. The news will come as comfort to households that are preparing for Brexit disruptions to the economy in the months ahead. Meanwhile, Bank of England Governor Mark Carney said that today’s Pound exchange rate rally was attributed to the possibility of an extension on Article 50.
‘Public market commentary, consistent with our market intelligence, that rebound appears to reflect some expectation that the process of resolution would be extended and that the prospect of no-deal may have been diminished.’
The Pound is expected to be incredibly volatile in the political aftermath of last night’s humiliating and historic result, which could create some sharp swings against other currency majors. Theresa May’s deal was rejected by a majority of 230 MPs, and May’s Plan B is likely to be very similar to Plan A. Jeremy Corbyn’s no-confidence vote in the government will be put to a vote tonight at 7:00pm. There are a number of actions that could potentially take place now–from a general election, another referendum, or a no-deal Brexit, there’s plenty of room for market movement. If Corbyn’s no-confidence motion fails, the Labour Party could publically back a second referendum. Meanwhile, if the no-confidence vote was successful, the Pound could sink on the prospects of further delay and another general election.
Today’s interbank levels so far (correct as of 08:04am):
GBP/EUR – 1.1301
GBP/USD – 1.2887
GBP/AUD – 1.7880
GBP/NZD – 1.8882
GBP/CAD – 1.7075