E-mail:    

Another reason for the bulls to stake their claim of a higher GBP is talk of the BOE raising interest rates as early as next year.  Looking at MPC Official Bank Rate votes, there was one member who voted for a rate hike.  This was the first time there was a split between policymakers since last July.  Add into that the sudden jump in CPI to 2.3% versus the expectation of 2%, inflation is indeed moving higher.  And another reason is the UK economy is holding its own with it actually growing at the fastest rate among the G7 economies in 2016 despite the fears of it falling into recession following the Brexit vote.

Bulls also believe that the USD will start to come under pressure due to Trump not following through on his tax cuts and other fiscal policies.  And the Euro will also again begin to feel the strain, not because Marine Le Pen will win the French elections but if the UK economy continues to perform then it might tempt other EU nations to look at their own positions within the union. Then there’s the interest rate disparity, with the BOE more likely to raise rates before the ECB.

At the end of the day, whatever corner you stand in, only the market will dictate the final outcome for the sterling in 2017.  Due to fact, we have never had an EU member leave before, all of us will be waiting to see what the actual impact will be, not just to the UK but to EU and to a lesser extent the global economy.  Either way, the volatility will most likely continue and the world’s oldest currency will still be as interesting as ever.

James Trescothick
Chief Global Strategist
EasyMarkets

<<Previous