February FX outlook from Argentex

Our foreign exchange (FX) partner, Argentex, gives us their February forecast:

All eyes are on Theresa May this month as the pressure mounts against her. She’s putting a brave face on things but if the press is to be believed, there are letters piling up in the House of Commons demanding her replacement. It’s safe to say that this would be self-destructive for the Tories and overall negative for the Pound.

Anyway, back to the gripping subject of Brexit; a leaked report indicated that the UK could be worse off based upon all the current known scenarios for leaving the EU. The report even noted that a US trade deal will only claw back a small fraction of that lost in leaving the single market. Good news then!

Having said that, it’s definitely not all bad where sterling is concerned. The most recent political news surprisingly hasn’t had too much of an impact on the pound. In fact, the outlook is still fairly optimistic for strength over the course of 2018.

That being said, there is a chance we will see a move lower in the short-term, particularly against the US dollar given the large shift up in levels we’ve seen over the past few weeks.

Looking outside of the UK, there are certainly some things to look out for that have potential to move the Pound. The recent Federal Reserve (Fed) meeting marked the end for Janet Yellen and the start of Jerome Powell. Powell has a tough role given he takes over with stock markets sitting at record highs, growth continuing to strengthen, unemployment at the lowest level since 2000.

Given recent comments from Fed members, there appears to remain some disagreement at the expected pace of further interest rate hikes this year and whether they’ll match 2017 with a further 3 hikes. Recent comments from Steve Mnuchin that a weak dollar will help trade has also concerned investors and advancing the dollar sell off.

Whilst there remains a positive outlook for the Eurozone and single currency, there have been some disappointing figures recently. Q4 GDP missed the expected 2.7% growth (year on year), although 2.6% growth is still very impressive. January economic sentiment, services sentiment and business climate all missed analyst expectation.

German inflation for January was also behind expectation at 1.4% versus 1.6%. This was a surprise given the optimistic comments from the European Central Bank and Mario Draghi recently in Davos indicating a very positive outlook for the Eurozone. Draghi noted that inflation is no longer a huge concern with price growth expected to hit 1.9% by the end of 2019. Recent inflation data for January came out at 1.3% which was as predicted. Given the optimistic rhetoric from Mario Draghi, this figure can be viewed positively.

Disclaimer

This material has been prepared by Argentex LLP, a firm authorised and regulated by the Financial Conduct Authority and is for the use of intended recipients only and the contents may not be reproduced, redistributed, or copied in whole or in part for any purpose without Argentex’s prior express consent. No representation, warranty, or assurance of any kind, express or implied, is made as to the accuracy or completeness of the information contained in this material and no member of Argentex accepts any obligation to any recipient to update or correct any information contained herein. This material is published for information purposes only and does not constitute an analysis of all potentially material issues. Views expressed herein are not intended to be and should not be viewed as advice or as a recommendation. You should take independent advice in respect of issues that are of concern to you. This material does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any investment, nor does it constitute an offer to provide any products or services that are capable of acceptance to form a contract. Argentex accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising in any way from the information contained in this pack.

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