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Sterling boosted by consumer confidence and housing data

Wednesday, August 31, 2016 - 17:03

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Sterling rose on Wednesday, boosted by improved consumer confidence and rising British house prices in August, adding to growing signs that the economy was holding up well despite a shock vote to leave the European Union in June.

[LONDON] Sterling rose on Wednesday, boosted by improved consumer confidence and rising British house prices in August, adding to growing signs that the economy was holding up well despite a shock vote to leave the European Union in June.

Market research firm GfK said its gauge of consumer confidence rose to -7 in August from -12 in July, when it suffered its sharpest drop in over 26 years. But August's level was still the second-lowest since early 2014.

And mortgage lender Nationwide said on Wednesday that British house prices rose 5.6 per cent in August compared with the same month last year and faster than July's 5.2 per cent. Economists polled by Reuters had expected house prices to rise 4.8 per cent.

Sterling rose to trade above US$1.3101, while it was up 0.2 per cent against the euro at 85.05 pence per euro. "Overnight, we saw UK August consumer confidence bouncing back," Morgan Stanley chief strategist Hans Redeker said, adding he remained bullish on the pound in the short term.

sentifi.com

Market voices on:

"Our bullish sterling case is more of tactical nature based on better UK data readings. Upcoming PMI data should show a bounce back."

Manufacturing, construction and services sector purchasing managers' surveys will be released at the start of September and many expect activity to bounce back a bit from the Brexit shock.

Sterling hit a three-decade low of US$1.2798 in July in the wake of the vote for Brexit. It has since recovered about 2 per cent, but that still leaves it around 12 per cent lower than where it was before the June 23 referendum on EU membership.

Though data since the vote suggests consumer demand has been resilient, investors are anxious that foreign capital will dry up, leaving Britain's already huge current account deficit vulnerable to further widening. And much uncertainty remains over the deal Britain will strike with the rest of the EU.

Traders will eye a cabinet meeting that Prime Minister Theresa May will hold after a few weeks of holiday calm. The meeting comes amid growing speculation on when Britain will formally start divorce proceedings. Ms May has said she will not trigger Article 50 of the EU's Lisbon treaty to start the exit procedure until next year.

"Brexit has become more of a gradual process," strategists at Societe Generale said. "There is a special UK cabinet meeting being convened today to discuss the Brexit agenda with the key issue being whether to continue with single market access."

REUTERS

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