By Ashley Finill
This week has seen a shift in sentiment, as the Pound has come under some pressure as investors continue to assess the economic plans of the UK’s new Prime Minister, Andy Burnham.
One of the main talking points has been the possibility of raising the personal tax allowance. While no firm commitment has been made, the mixed messaging from the government has created some uncertainty in the markets. Investors generally prefer clarity, and any uncertainty over future government spending or taxation can weigh on Sterling. There are also concerns that any future tax cuts or increased spending could lead to higher government borrowing. Although nothing has been announced yet, the market is beginning to question how any new policies would be funded.
If investors become less confident in the UK’s public finances, it could put further pressure on the Pound over the coming week/months. Despite Sterling performing well over recent weeks reaching over a 12-month high against the Euro, the Pound’s positive momentum could slow if political uncertainty continues. The Pound has benefitted from a relatively smooth change in government leadership, but markets are now looking beyond the honeymoon period, and focusing on whether the new government can maintain confidence while sticking to its fiscal commitments.
Positive Retail Sales Fail to Lift Sterling
There was some positive news for the UK this morning as retail sales came in stronger than expected at 1%, up from the expected -0.3%. The jump up has been helped by the recent heatwave, which boosted spending on summer clothing and online shopping. Normally, stronger retail sales can provide support for Sterling, however today’s data had very little impact against the Euro.
This suggests that investor sentiment is currently being driven more by concerns surrounding the new government’s economic plans than by positive economic data, with political uncertainty continuing to weigh on the Pound. Although this week has brought some disappointment for the Pound, it is worth noting we are still around 12-month highs against the Euro, so Euro buyers can still have confidence in securing a good rate, despite this recent setback for the Pound.
Data Remaining Today
There are a few notable data releases today which could influence the currency market, as PMI data is released across the board. At 9am starting with the EU, the UK follows at 9.30am and finishing with the US at 2.45pm.
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