This week the UK has produced outstanding PMI figures with manufacturing, construction and Service PMI figures all smashing estimates suggesting that the UK is healthier and more stable than we previously thought. The pound has stuck its tongue out at the euro as the upswing in positive data has been reflected in the GBPEUR rate racing past 1.18, highs not seen since May this year. Even against the
US dollar, sterling has showed that it isn’t a pushover, and if the
US dollar is to strengthen, the Fed better make up their mind about if and when they will taper stimulus this year. The UK’s top class performance prompted the Confederation of British Industry to increase their UK growth forecast last month. Optimism about the UK outlook has continued this week and yesterday the OECD (Organization for Economic Cooperation and Development) released its growth forecast for the UK raising their estimates to 1.5% yearly growth from an earlier prediction of 0.8%.
The BoE rate announcement on Thursday could pull a dark cloud over recent sterling performance. If Governor Carney talks that dovish talk then we could well see the pound fall back (we may finally be convinced). Nevertheless, what the FX market cannot deny is that the outlook for the UK definitely deserves a thumbs up. Assuming it continues in this direction Carney’s commitment low interest rates may become questionable, and the market will not hesitate to give him a run for his money. After all, we haven’t even begun to rip apart effects to inflation, only then will his true colours have to show and we will see whether Carney can actually walk the walk.
Sasha Nugent
Currency Analyst
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