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Vertex FX 10

The UK recovery gains pace

The economic indicators for the UK economy are showing that a recovery is beginning to gain momentum and is hopefully sustainable. Since the “credit crunch” the economy has been into a recession (not the double, or triple that had been previously thought) but it was deeper than initially thought.

The British economy is dominated by the service sector, and is a global leader in many areas of finance, such as foreign exchange transactions. The PMI data released on Monday combined with today’s surge in manufacturing is an important milestone. The better than expected data points have led to numerous bullish articles in the media covering the UK economy.

The improved data points, matches the Q2 GDP estimate and has led to economists and analysts of various banks and brokerages to upgrade the UK Q3 GDP expectations.  

GBP in the currency markets

Each positive piece of data has put a bid into Sterling the currency markets, as investors look forward the strengthening economy and the eventual rise in interest rates and the reduction in QE. Though over the immediate term, cable is unable to break to a 1.54 handle with offers below that level.

Mark Carney’s “Forward Guidance”

On Wednesday the new Bank of England governor, Mark Carney will reveal his guidance of interest rate expectations and the economic requirements. This level of transparency isn’t preferred by all of the members of the MPC, but Carney as governor, of the Bank of Canada did similar announcements. The premise behind the transparency is to create a broader understanding of when the BoE is likely to tighten monetary policy.

This event will be pivotal for Sterling and could lay the foundations for Carney’s tenure as governor.

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