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The pound appreciates despite negative signals from the economy (Afternoon analysis 13.03.2019)

13 Mar 2019 16:04|Bartosz Grejner

The United Kingdom is expected to grow at a rate of 0.4 percentage points lower than the British government expected in October. The pound, however, recorded strong increases. Today and tomorrow's votes in the British Parliament may increase the volatility of the pound's value. The situation on the market supports the stabilisation of the zloty.

EUR/USD over 1.1300

Little new was revealed after yesterday evening's vote in the British Parliament. As expected, Prime Minister Theresa May's plan was rejected with more votes than in January. One thing is clear: neither the uncertainty about the Brexit nor the volatility of the pound is being reduced. Yesterday's vote, in theory, was negative for the pound. The British currency, however, has been growing strongly since the morning, with just over 1% to the dollar - GBP/USD rising to nearly 1.32 within half an hour of the start of the New York trading session.

The pound was also not disturbed by the speech of the Chancellor of the Treasury, Phillip Hammond, before the British Parliament. Following, among others, the eurozone and Germany, he lowered the UK's GDP growth forecast for 2019 to 1.2 per cent, compared to 1.6 per cent forecast in October. Today's pound appreciation, at least until the early afternoon, seems to be slightly overstated. In the long run, the pound may generate strong profits - and this is what investors hope for, but in the shorter term, the risks for the British currency have risen slightly. Large fluctuations can still be expected in the evening, especially around 7 p.m. British time (8 p.m. Polish time), when the vote on the so-called hard Brexit will take place. There is no uncertainty here, the option of chaotic leaving the ranks of the EU on 29 March will be ruled out.

However, the situation for the dollar has not changed much. After yesterday's weaker than expected consumer inflation, today's data on orders for durable goods turned out to be mixed. They increased by 0.4 per cent per month, against a forecast decrease of 0.4 per cent. However, their core index, excluding transport orders, fell by 0.1 per cent, although an increase of 0.1 per cent was expected. Unclear picture from these data, considering yesterday's inflation reading, confirms the market in the belief that the Federal Reserve will remain "patient" regarding interest rate increases for the time being. This should prevent the dollar from appreciating more strongly until macroeconomic data suggest an increase in inflationary pressure in the US.

Slightly stronger euro and weaker dollar (the EUR/USD exceeded 1.1300 in the afternoon), as well as positive sentiment on the equity market continue to support the zloty in relation to the main currencies. The fluctuations of the Polish currency should be limited primarily to GBP/PLN in the coming hours. The value of the pound was still above the 5.00 PLN level today and given the votes in the British Parliament today and tomorrow, fluctuations of around +/- 4 PLN seem probable.

Tomorrow' preview

Another day, another vote on Brexit. This time it will be the last, although more important than today. It is more important because it has many consequences that the United Kingdom itself is not able to predict. The vote will be about extending the Brexit process and it is practically certain that the proposal will be adopted. The EU, in turn, will not be willing to extend the process beyond May 23rd, when elections to the European Parliament will take place. This gives the UK less than two months to find any solution, which has not been done for a much longer period of time. The scale of May's failure suggests that the current government will not achieve this. On the one hand, this increases uncertainty (there are still big fluctuations for the pound), and on the other hand, the chances of new elections increase (ultimately most likely positive for the pound).

13 Mar 2019 16:04|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

13 Mar 2019 13:11

Political chaos in the British Isles (Daily analysis 13.03.2019)

12 Mar 2019 16:29

US inflation below expectations (Afternoon analysis 12.03.2019)

12 Mar 2019 13:14

Great volatility on the British currency (Daily analysis 12.03.2019)

11 Mar 2019 15:38

Calm Monday but not for pound (Afternoon analysis 11.03.2019)

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