The pound ticked higher versus the dollar in early trade despite weaker than forecast UK retail sales. However, a stark no deal Brexit recession warning from the OECD has since pulled sterling back to the flatline versus dollar. The pound is weaker versus the euro.
Attention will now turn to BoE policy announcement. Whilst the central bank has previously foreseen a path of gradual rises, it has not taken action, owing to Brexit. The BoE is not expected to change monetary policy as it remains paralysed by Brexit uncertainty. That said investors will still be watching closely to see whether the BoE sticks with its hawkish bias.
What does the data say?
UK GDP surprised to the upside and UK wage growth remains strong. However, amid ongoing Brexit uncertainty and slowing global trade, the UK manufacturing and construction sectors are in a downturn, the dominant service sector is stagnating, retail sales disappointed and inflation is at a 3-year low and ticking away from the central bank’s 2% target.
Whilst GDP and wage growth are very closely watched indicators, the overriding picture of the economy has turned gloomier.
The BoE decision will be closely watched. However, Brexit is the principal driver of the pound.
As the pressure is mounting on the two sides to get a deal done, the OECD released a report highlighting the expected economic consequences of a no deal Brexit. The report makes for grim reading with the UK economy expected to immediately experience a heavy decline in trade and fall into recession; the longer-term impact could also be pronounced, holding back the UK’s economic potential.
The three-day hearing at the UK Supreme Court will to an end, adding to the potential of a volatile day for sterling.
Levels to watch GBP/USD:
The pair must make a meaningful move above key psychological level and 100 DMA $1.25 to increase the prospects of a move towards resistance at $12560. Strong momentum could take the pair towards $1.26.
On the downside $1.2440 would need to be broken down prior to $1.24 and onto $1.2380.