Analysts deeply divided over pound

16 February, 2017

The British pound slipped in todays trading after disappointing local data and analysts are still deeply divided on the future direction of the currency.

At 3.19pm (GMT) the British currency was trading at $1.2461 down from $1.2466 in yesterday’s close.

Data out from the from the ONS today shows that the Average Earnings Index rose 2.6% in December against expectations of a 2.8 percent rise which caused the pound to fall against the majors.

"The markets are focusing on wage data as it will be a key driver of monetary policy this year. If wage growth rises sharply then central banks should hike interest rates at a faster clip than currently expected. However, today’s weaker wage data could take the pressure off the BoE, hence the decline in UK bond yields this morning, which has also weighed on the Pound," says Kathleen Brooks at City Index in London.

Where the pound will end up as Brexit appears is anyone’s guess with predictions ranging from parity with the US dollar to one of the world’s stable currencies,

In an interview with Bloomberg, George Saravelos from Deutsche bank noted that the pound could fall another 16 percent on the back of Brexit due to the amount of uncertainty surrounding the move,

“The UK is one market where we have stronger views in terms of where currencies are going,” Mr Sarvelos said.

“Even though intentions are quite positive on both sides, we’re very concerned about the lack of time to complete a deal in two years, and we worry that negotiations will get stuck around this issue of the payment which the UK has to make to leave the EU, and things will stall quite quickly,” he added.

On the other end of the spectrum is Sheena Shah at Morgan Stanley who noted that investors would flock to the British pound after Brexit in favour of the euro,

“GBP is an interesting proposition - it benefited from safe-haven inflows during the Eurozone crisis, but in a post-Brexit world it's less clear how the currency would perform, we maintain that GBP would still be a safe haven, if not to the extent it was in the past”. She said.

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