The pound has had a good week and should end it on a high, gaining back some of its losses following comments from outgoing Bank of England Governor Mark Carney, who talked about the UK economy’s weakness. Carney’s intervention is surprising, although not out of character, in that it comes so soon after the General Election. Across the Atlantic, the US dollar is also doing well, having its best week in two months. At the time of writing, the pound is 1.1775 against the euro, and 1.3066 against the dollar.
Sterling Proves Resilient
Many analysts have interpreted the Governor’s comments as a signal that a cut to interest rates might be around the corner. Carney also mentioned that the Bank was ready to respond in a “prompt” manner. Normally, currency markets tend to lose values when interest rates are cut by a central bank. Carney’s speech is estimated to have knocked almost .5% off sterling. However, due to the relative political stability, the pound has recovered those losses.
Carney’s statements could be seen as premature, as we’re only ten days into 2020, which is really too early to make judgements on the economy and measure the impact of the “Boris bounce”. The Services PMI data released this week shows that companies have an increased confidence level following the December general election, which saw the Conservatives win an 80 strong majority.
In addition, the Halifax Bank published house price data, showing that house prices had their highest monthly increase in almost 13 years in December. Prices increased 1.7% month on month, making the annual increase 4%. Anecdotally, there seems to have been an instantaneous pickup of interest in the UK’s housing market following the general election result. So much so, that the morning after the election, a family bought a luxury £65m property in London. They said that the decision was a direct result of the Prime Minister’s historic win.
Trump Allays Dollar Concerns
Meanwhile, earlier in the week the dollar’s value dropped slightly due to rising tensions in the Middle East. The killing of a senior Iranian general, strikes on US airbases in Iraq, and the controversial crash of a Ukrainian commercial airliner over Iran have intensified geopolitical pressures. However, tensions have de-escalated following President Trump’s recent speech, which many feared could prove inflammatory.
The dollar has also had a boost following the publication of strong economic data. A rise in private payrolls, a decline in jobseeker’s allowance and improvements in the services sector have all helped the currency’s strength.
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