Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Pound Drops To 5-Week Low Against Buck

Published 24/04/2018, 12:13
Updated 18/08/2020, 10:10

There’s been further downside seen in the pound this morning, with the currency falling to its lowest level since mid-March against the US dollar on what is essentially a shifting of views on future monetary policy on both sides of the Atlantic. The pair is set for a 6th consecutive daily decline and the outlook for many is now quite different compared to this time last week when the pound was at its highest level since the day after the Brexit vote in 2016.

Sterling bulls under pressure

This fairly dramatic reversal in the pound has largely been caused by the market being caught wrong-footed as far as UK rate hike expectations are concerned, with Carney’s comments last week dispelling the notion that a further increase next month is highly likely. The bank may well proceed with a May hike, and if they do then this would now be more supportive of sterling given that the market has grown more sceptical as to the chances of this occurring. However, should they stand pat the bullish case for sterling will be left looking fairly flimsy.

Seasonality failing to boost sterling

April has traditionally seen strong positive seasonality for the pound, with capital inflows into Britain from foreign firms paying dividends to UK shareholders, but this has failed to support the currency of late, with the GBPUSD rate now lower than where it began the month. Should the pair end April with a negative return then it would break a run of 14 consecutive years in which it has gained.

US yields near 4-year highs

Whilst it is tempting to focus on this from a UK perspective the impact of recent developments in the US shouldn’t be overlooked with government bond yields across the Atlantic on 10-Year notes near 4-year highs, and on the cup of 3%. Higher US yields are seen as supportive of the buck and with inflation expectations receiving additional support from the Oil price - which is currently at its highest level since 2014 - then there is a growing possibility that we get a faster pace of tightening from the Fed.

UK government borrowing falls to lowest in over a decade

Government borrowing has dropped to its lowest level in 11 years according to the latest set of official figures as the public purse strings continue to be tightened. According to the latest figures from the ONS, borrowing fell by £3.5B to £42.6B in the last financial year - largely thanks to a £1B decline in interest payments and a £1.4B reduction in Local Authority borrowing.

Drops in public spending are often seen as a sign of economic strength, but this isn’t really the case here with it being more an example of the government sticking to its guns as far as austerity programme is concerned, despite relatively low levels growth. 2017 saw the UK lag the global recovery in growth with GDP coming in at 1.7% - the lowest level since 2012 and below many of its peers. The first estimate of Q1 2018 GDP will be released this Friday with a fairly sluggish 0.3% increase Q/Q expected.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.