What a week! Britain has been buffeted by two storms this week. Storm Emma earlier in the week and a storm of political verbiage at lunchtime on Friday - at least that's the Heritage Pay team's interpretation of Michael Heseltine's views on the Prime Minister's latest articulations on Brexit. He said the speech was just, "...phrases, generalisations and platitudes.”
Apart from these two unconnected, but headline-grabbing events; data releases from the Manufacturing and Construction sectors of the economy, came out on Thursday and Friday, respectively. Both sets of numbers showed better growth than analysts expected. To expect Sterling to firm up, on the back of the good news, would have been a good currency bet - under normal circumstances.
Unfortunately, we are not living in normal times.
Rhetoric, political posturing, and indeed lack of clarity - from a sufficiently high up source - has the power to very swiftly turn Sterling's fortunes. For better or for worse. And this week it was for worse. That's because this week we saw a series of speeches by senior cabinet ministers which were billed as a detailed clarification of the UK Government's views on it's future trading relationship with the EU. Reactions from the Conservative cabinet ministers and MP's have been very positive as the speech seems to keep all sides happy.
However, markets do not like uncertainty. And since none of the speeches did anything to assuage market concerns about "cherry-picking" or provide a solution to the Irish border question; by 11pm on the eve of the Prime Minister's speech, Sterling had skidded to a 3-week low against the Euro. During the course of the next 16 hours, up to the moment much-anticipated PM's speech finally concluded - shortly before 3pm on Friday - GBP/EUR finally found some support around lows last seen 3 months ago. It seems, the market is at one with Heseltine on the lack of clarity on issues where differences between the EU and the UK will determine what form of Brexit will result.
There was not much reaction on GBP/USD. This was possibly because on Friday, President Trump hinted at a trade war in the steel market.
According to newspaper reports, economists estimate that the snow, which paralysed much of the country this week, has cost the UK economy £1bn per day. At least, that is quantifiable. We wonder what then, could be the cost of economic damage from the lack of clarity on the Government's position on the major Brexit issues. It also remains to be seen what the EU's official reaction will be. And more importantly for us, here at Heritage Pay, what the effect of that will be on Sterling.
Thank you, we'll see you next week.
Next Week's Key Events (all times are GMT):
Mon 4th Mar 09:30 hrs: UK Services PMI
Mon 4th Mar 15:00 hrs: ISM Non-Manufacturing PMI
Tue 5th Mar 03.30 hrs: Australian Interest Rate; & Policy Statement
Wed 6th Mar 00:30 hrs: Australian Quarterly GDP
Wed 6th Mar 15:00 hrs: Canadian Interest Rate
Fri 8th Mar 13:30 hrs: Canadian Employment; & Unemployment
Fri 8th Mar 13:30 hrs: US Non-Farm Payrolls
To discuss how the above may affect you, please contact your Currency Dealer at Heritage Pay on +44 (0) 203 858 7274.