• PM Bulletin: Sterling under pressure

    Both the FTSE100 and FTSE250 have rallied around 18% off the lows hit in the aftermath of the UK’s referendum decision to leave the European Union.  The FTSE100 is now around 7% higher than its pre-Brexit close, and even the more domestically-focused FTSE250 has tacked on 2% over the same period. Both indices are currently within 4% of their all-time highs hit last year. This is despite the Bank of England slashing its 2017 growth forecast for the UK to +0.8% from +2.3%. Of course, last week’s decision by the Bank to cut its headline interest rate and restart its asset purchase programme has helped to lift UK equities, as has the general positive sentiment to global stocks.

    Meanwhile it is sterling which continues to suffer. Cable seemed to be steadying after it briefly broke below 1.2800 two weeks after the referendum. It bounced back above 1.3000 and spent most of July appearing to rebase between 1.3100 and 1.3200. However, today’s move lower suggests that there could be more pain to come. The GBPUSD broke below 1.3000 this morning to trade at its lowest levels in a month. The trigger for this move was the release of a clutch of UK data - Manufacturing Production, Industrial Production and specifically the Goods Trade Balance.

    The trade deficit rose to £5.1 billion in June, around double the consensus expectation. Imports came in at £48.9 billion, which was a record for a single month.  Exports rose by £1 billion over the same period. The sell-off in sterling since the referendum should help to boost exports and temper imports, but this will take time. In addition, any improvement could be moderated by the possibility of slowing global growth and uncertainty ahead of future UK/EU Brexit negotiations.

    Chart-wise, there’s little in the way of support for cable between current levels and the post-Brexit low around 1.2800. Below here we’re trading at levels not seen since the mid-1980s. Resistance comes in around 1.3330 or so. This marks the 0.24 Fibonacci Retracement of the sell-off from the high seen ahead of the referendum and the low hit in the first week of July.

    PM Bulletin

    David: Cable seemed to be steadying after it briefly broke below 1.2800 two weeks after the referendum.

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