GBP: Current Sentiment DriversLatest Developments:
March 28 – The UK’s coronavirus count increased to 4,333,042 cases (+3,862).
March 24 – CPI for February slowed to 0.4% Y/Y (prior 0.7%) and printed at 0.1% M/M (prior -0.2%). Core CPI slowed to 0.9% Y/Y (prior 1.4%) and printed at 0.0% M/M (prior -0.5%).
March 18 – At their March meeting, the BoE kept its official Bank Rate unchanged at 0.10% and its QE programme at £895 billion. The BoE added that they do not intend to tighten policy until there is clear evidence that there is significant progress towards eliminating spare capacity and achieving its 2% inflation goal.
February 23 – The Unemployment Rate for December increased to 5.1% from a prior of 5.0%. Employment Change printed at -114K while Average Earnings printed at 4.7% 3M Y/Y. For January, Claimant Count Change printed at -20.0K.
November 12 – Preliminary Q3 GDP printed at 15.5% Q/Q and -9.6% Y/Y versus expectations for 15.8% and -9.4% respectively.
Future Sentiment Shifts:
There are several risks to GBP’s outlook, particularly with respect to the UK’s coronavirus/lockdown outlook and interest rate expectations.
Of these two, expect the UK’s coronavirus outlook to play the more influential role in the short term as the UK’s coronavirus vaccine rollout continues to show signs of stabilizing its breakout, which in turn, should allow the UK to ease lockdown restrictions in the months ahead. However, in the medium term, as the market’s focus shifts, monetary policy should dominate.
Regarding monetary policy, risks still remain; although, further easing appears unlikely at this point and markets looking for a hike in 2022.
Primary Drivers:
Bank of England – Monetary Policy in the UK remains highly influential to GBP’s fundamental outlook.
Expectations for policy tightening should prove GBP positive, while expectations for policy easing should prove GBP negative.
Brexit – The outlook for the UK’s exit from the EU in December remains a key influence for GBP as it poses significant risks to the UK’s economic outlook. With the UK set to leave at the end of the year and progress in negotiations between the UK and the EUR significantly hampered by the coronavirus outbreak, risks remain firmly tilted to the downside with a hard Brexit or even no deal Brexit remaining distinct possibilities.
