Pound retreats, seen as temporary
Published on 05.04.2018 16:55

The British pound has taken a tumble in today’s trading session after the release of Markit services PMI threw into doubt the overall state of the UK economy.

The all-important PMI figure fell to 51.7 last month, which is significantly lower than the previous month of 54.5 in the previous month and well below analysts’ expectations for a figure of 53.9

Some attribute the heavy snowfalls recently that seriously disrupted business in Britain as being the culprit behind the disappointing numbers so next month’s release will be closely monitored, and another poor figure may lead investors to believe that bad weather was the cause of the slowdown.

Withstanding today’s disappointing figures, most analysts are currently still bullish on the pound and point to a numbers of factors such as expected rate hikes from the Bank of England and a transition deal between the EU and UK, which has seemingly removed the risk of a Hard Brexit.

These factors, as well as a few others they believe will drive the pound higher as the year unfolds.

“Brexit risks are overplayed, my view is that agreements will be made,” said John Goldie at London-based broker Argentex LLP

“While there is inevitable struggle over this period, I don’t think things have been nearly as bad as previously thought. There is room for the BOE to consider a second rate hike this year. If that expectation gathers ground, that’s another reason to see sterling move higher.” he added.

The market has now priced in a more than 60 percent chance that the BOE will hike rates in May with the possibility of a further rate rise in November now gathering momentum.

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Andrew Masters

Analyst

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