Bank of England: uncertainty over Brexit is not a hindrance for the pound

The message that the leaders of the United States and China may not meet before March 1 was the cause of strong sales at the stock markets of Europe and the United States. CNBC reported that the likelihood of such a meeting was "extremely small," and the head of the White House National Economic Council, Lawrence Kudlow, in an interview with Fox Business, was forced to admit that there was still a lot of disagreement and a lot of work was needed to overcome them.

Since it is from March 1, the United States intends to increase import duties from China by 25%, the markets assumed that until that time, the leaders of the two countries could find a mutually acceptable solution. If the meeting does not take place, the positive accumulated in advance can disappear in the blink of an eye, which will lead to a drop in risky assets and an increase in demand for gold and bonds.


Exports and imports in Germany and in December were better than expected, an increase of 1.5% and 1.2% against + 0.4% and -1.6% a month earlier, but in order to support the euro, this is clearly not enough. Today, EUR / USD will look for direction, trade is likely to take place in the sideways range, an attempt to test the minimum of 1.1323 reached on Thursday is not ruled out, since the next target of 1.1288 is still of higher priority. Correctional rise to 1.1365 / 70 is possible, but it is less likely.

Great Britain

As expected, the Bank of England unanimously voted to keep the rate at 0.75%, simultaneously lowering forecasts for both GDP and inflation. The forecast for economic growth in 2019 has been reduced from 1.7% to 1.2%, in 2020 from 1.7% to 1.5%, and only from 2021 will economic growth accelerate.

Despite the fact that the Bank made an amendment to the need for revision after the situation with Brexit becomes more defined, the forecasts look too optimistic. PMI indices are very bad and point to zero growth in Q1, so for a yield of 1.2% during the year, a strong positive contribution from the other three quarters will be required.

But it is completely unclear at what resources this contribution will be received. As noted in the report on inflation, investment growth in business fell in the UK lower than in all G7 countries, and last year became completely negative.


At the same time, there are no problems associated with tightening financial conditions. The depreciating pound maintains a high level of profitability of capital, especially in the manufacturing sector, there are no significant changes in the cost or availability of bank lending. The Bank of England predicts that throughout 2019 business investment will continue to decline, as the uncertainty associated with Brexit persists.

Partially optimism is due to the growth in average wages, which is at its highest level in 10 years, and therefore the regulator expects that inflation will resume in the near future, and consumption will be sufficient for economic growth.

Be that as it may, the chances that the Bank of England will raise the rate in May have dropped to almost zero. At best, the market is waiting for this step in November, and then only if certain conditions are met. As Mark Carney explained at the press conference, the rate may be raised earlier, as soon as the uncertainty with Brexit is clarified, since companies in the changed conditions will be able to resume investment plans.

Some hopes were pinned on Theresa May's talks with EU leaders on Thursday, but they didn't bring any significant results. As stated by J.-C. Juncker, the EU will not re-discuss the agreement on the withdrawal of the UK from the EU, another meeting is scheduled until the end of February, but the chances for a breakthrough are still not high.

The minimum of 1.2852 reached on the eve will remain as a guideline, GBP / USD may make another attempt at corrective growth and test for strength of 1.2989, however, trading in the range is more likely.

The material has been provided by InstaForex Company -