14 Jan 2016
GBP: Counting the headwinds - Rabobank
FXStreet (Delhi) – Jane Foley, Research Analyst at Rabobank, suggests that the release of the UK November production data earlier this week showing a far worse than expected -0.7% m/m decline in the headline figure was led by a dismal -0.4% m/m contraction in the manufacturing sub sector.
Key Quotes
“The data left the market with no doubt that the difficulties that have been evident in this sector are showing no sign of lifting. Sterling strength has taken its fair share of blame for the hard times suffered by UK manufacturing and the poor performance has been compounded by relative slack growth in the Eurozone – the UK’s largest export partner.
Although strengthening growth of consumer credit suggests there is risk of more macro-prudential measures this year, based on the economics we believe that a convincing argument can be made for the BoE to delay its first hike in interest rates at least until Q4 this year. Political uncertainty surrounding the forthcoming EU membership referendum strengthens the case for a delay.
Insofar as political uncertainty from any source is usually currency negative, this latter scenario would clearly be most positive for the pound. However, risk that the referendum could be delayed until September and potentially beyond suggests that GBP could be in for a volatile year. While GBP is vulnerable to both a dovish BoE and political uncertainty, EUR/GBP has already returned to levels not seen since last January. A step up in dovishness from the ECB should offer some resistance.”
Key Quotes
“The data left the market with no doubt that the difficulties that have been evident in this sector are showing no sign of lifting. Sterling strength has taken its fair share of blame for the hard times suffered by UK manufacturing and the poor performance has been compounded by relative slack growth in the Eurozone – the UK’s largest export partner.
Although strengthening growth of consumer credit suggests there is risk of more macro-prudential measures this year, based on the economics we believe that a convincing argument can be made for the BoE to delay its first hike in interest rates at least until Q4 this year. Political uncertainty surrounding the forthcoming EU membership referendum strengthens the case for a delay.
Insofar as political uncertainty from any source is usually currency negative, this latter scenario would clearly be most positive for the pound. However, risk that the referendum could be delayed until September and potentially beyond suggests that GBP could be in for a volatile year. While GBP is vulnerable to both a dovish BoE and political uncertainty, EUR/GBP has already returned to levels not seen since last January. A step up in dovishness from the ECB should offer some resistance.”