Pound Sterling (GBP) Exchange Rates Firm Despite Mixed Eco-Stats
While investor focus, rightly so, has been held squarely on Brexit-centric developments as MPs voted down PM May’s withdrawal agreement in a huge defeat for the government and in anticipation of Wednesday evening’s vote of no confidence, tabled immediately following the epic meaningful vote failure, UK economic data released during Wednesday’s session held muted market impact as the Pound Sterling (GBP) maintained recent session gains against a basket of peer currencies.
Versus the Euro, the Pound Sterling Euro (GBP/EUR) exchange rate posted a fresh two-month high above 1.13 and while the x-rate has pulled back slightly it remains very much in the vicinity suggesting the potential for further upside.
Against the US Dollar (USD), the Pound US Dollar (GBP/USD) exchange rate managed to hold on to gains accumulated in the post-vote GBP relief rally with the x-rate remaining close to the multi-week high of $1.29297 posted earlier in the week. At the time of writing, the GBP/USD exchange rate was $1.28490.
On the data front, the Office for National Statistics (ONS) released a host of economic figures during Wednesday morning. First and foremost, the consumer price index (CPI) release printed 2.1% (annualised), the lowest level since February 2017’s release. While moderated from the previous 2.3% release, the release highlighted the notable downward contribution from falling petrol prices.
The producer price index (PPI), while registering a decline in the price of goods and raw materials purchased by manufacturers, didn’t contract by as much as the forecasted -1.5%, dropping instead by 1.0%, significantly less than December’s negatively revised -2.6% printing. Annualised, the headline rate of output inflation increased 2.5% December to December, down from 3% in November.
As with headline inflation, the report highlighted the impact of falling oil prices, stating “Petroleum products and crude oil provided the largest contribution to the change in the annual rate of output and input inflation respectively.”
Following the CPI’s suit, the retail price index (RPI) fell to its lowest level since February 2017, printing 2.7%, missing forecasts of 2.9% and moderately lower than the previous 3.2% release. Core CPI provided a positive surprise, rising at 1.9%, above forecasts, and highlighting the transient impact of the volatile petroleum prices on the CPI measure.
The UK government release of the House Price Index (HPI), also ticked up, although the increase was lower than expected, printing 2.8% (annual) versus a forecast of 3.0% and a previous 2.7% release indicating upwards pressure on house prices between October and November 2018.
In light of the latest data, Danske Bank senior analyst, Mikael Olai Milhøj, predicts the Bank of England may push back any potential rate hikes, "With inflation slowly heading back towards the target, we do not expect the Bank of England to be in a hurry to deliver its next hike, especially amid the ongoing Brexit uncertainty. We recently changed our call for the next BoE hike from May to November this year."
Against a backdrop of continued political chaos as the government faces a motion of no confidence and Brexit remains mired by indecision and multiple possible scenarios, it’s unsurprising the sessions economic data releases held muted market impact for GBP-paired FX rates.
As chief investment officer at DWS, Stefan Kreuzkamp, commented “Everything remains possible: new elections, an extension of the deadline for Article 50, or even a second referendum… we continue to hope for an orderly exit of the United Kingdom from the EU. But the path to get there remains unclear, and in any case cobbled with plenty of hurdles.”