The Great Britain pound continued to be the strongest currency on the Forex market thanks to domestic macroeconomic data. Today, a manufacturing report from the Confederation of British Industry was the reason for the sterling’s amazing performance.
The CBI reported that business optimism improved sharply in the three months to January, jumping to +23% from -44% in October. The indicators improved with the fastest pace since April 2014. But Tom Crotty, Group Director at INEOS and Chair of the CBI Manufacturing Council, warned against being too optimistic yet:
The boost to optimism in the manufacturing sector is very encouraging given the difficult environment that firms have faced in recent months. However, it is clear that the sector is not yet out of the woods in terms of performance, which means that this optimism could prove to be short-lived unless the government use their newfound strength to help address underlying issues holding back manufacturers.
The main factor affecting the pound in the near future is the next week’s monetary policy meeting of the Bank of England. While traders were counting on an interest rate cut, yesterday’s good employment data and today’s great manufacturing report made them trim their bets on monetary easing. Currently, markets price in about 50% probability of a cut next week, down from 70% on Monday.
But there is another issue that can affect Britain’s currency — the potential trade war between the United Kingdom and the United States. The UK plans to introduce a new digital tax. And Washington thinks that it will be discriminatory against US tech giants and threatens to respond in an appropriate manner. One of the potential options is a tariff on British cars. US treasury secretary Steven Mnuchin said:
If people want to just arbitrarily put taxes on our digital companies we will consider arbitrarily putting taxes on car companies.
GBP/USD jumped from 1.3047 to 1.3133 as of 20:44 GMT today. EUR/GBP dropped from 0.8492 to 0.8444. GBP/JPY rallied from 143.29 to 144.29.
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