Good morning,

Same noises, same results

Sterling has yet to bottom out as London starts to wake up for a fresh trading session. Both GBPUSD and GBPEUR fell to levels that hadn’t been seen since October of last year as markets continued to penalise the pound for noises from the Prime Minister.

Indeed when questioned yesterday about the impact of her Sunday comments on sterling May told reporters “What I said yesterday is what I’ve been saying for the past few months” and therein lies the problem. We are 11 weeks from the proposed deadline for the invocation of Article 50 and we are no closer to knowing what the government’s stance is. Not intimate details but whether they will attempt to keep the UK in the single market or will drop it if their immigration reform desires are not met.

Can sterling fall lower than here?

Why not? We think that sterling will increasingly have to rely on the weakness of others (USD weakness from a Trump gaffe or policy error, EUR from political issues of its own) to gain relative strength. Our 2017 outlook for sterling noted that upside in the pound will return, possibly by the end of the year, although this depends almost exclusively on an easy path of negotiations between the UK and the EU. I think it is therefore prudent to wait until the government has laid out its negotiating plan before becoming bullish on GBP.

Political news from Northern Ireland has not helped matters and elections could easily be cast for the weeks in and around the Article 50 invocation. The Supreme Court ruling on the legalities of the government’s desire to use its royal prerogative is due in the next fortnight and could delay elections should regional assemblies be required to debate and pass the triggering of the Article themselves.

News from the High Street

Morrisons issued a trading statement for the Christmas period that showed the supermarket in fine fettle. Like-for-like sales, excluding petrol, grew 2.9 per cent in the nine weeks to January 1, easily surpassing the average of analysts’ expectations of 1.1 per cent.

The statement did not mention inflation or prices once but we think that UK businesses dealing internationally will increasingly come under pressure from the pound. This is not due to recent moves but more that hedges to protect against sterling declines before the Brexit vote are starting to expire. This means that increased prices and pressures on margins that have been delayed will be felt very soon.

The decision of Premier foods to hike the prices of household goods such as Bisto, Ambrosia, Oxo and Angel Delight.

Trump and oil hurting the greenback
The dollar is having a tough January and although last week’s decent payrolls report may have given the greenback a boost into the weekend that has largely been forgotten about ahead of the Trump press conference tomorrow – and Lord knows what that could bring – as well as noises from Iran over additional oil supplies that is taking the oil price lower.

The dollar is no longer the haven currency it once was; investors are jumping into the Japanese yen, Swiss franc and gold when things get dicey nowadays.

The Day Ahead
There is little new news on the data calendar today of note.

Have a great day

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