As recently as Tuesday morning, GBP/USD was below 1.4000 before then jumping almost 2 cents. After a half cent drop post-Fed, on Thursday it added nearly another cent to a high of 1.4275; its best level since the day of the ECB meeting last week. The overnight session in Asia was notable only for the relative calm – GBP/USD, EUR/USD and therefore GBP/EUR were all exactly where they were at close of business Thursday evening – but in Europe this morning the pound at last began to be weighed by poor data and political intrigue.
The UK Construction PMI posted 50.2 in January, down from 52.2 in December, reflecting a fractional rate of growth that was the weakest for four months. A return to contraction in residential building activity was accompanied by near-stagnant commercial and civil engineering activity. New orders declined, linked by many companies to market uncertainty after the collapse of major contractor Carillion last month. The rate of job creation eased to an 18-month low in line with the reduced growth of building activity. Whilst some firms hired additional staff in anticipation of future new project wins, others reported job shedding in response to lower workloads. Summing it up neatly, the Press Release was titled, “Construction output growth fades to near-stagnation in January”.
On the politics of Brexit, plenty of seemingly irreconcilable differences seem to be emerging. Yesterday the Prime Minister said that that EU citizens who arrive during the post-Brexit transition period must not have the same rights as those who came before. Sure enough, within a few hours, the European Parliament’s Brexit negotiator, Guy Verhofstadt, replied that, “The maintenance of EU citizens’ rights during the transition is not negotiable… We will not accept that there are two sets of rights for EU citizens. For the transition to work, it must mean a continuation of the existing acquis [EU law] with no exceptions.” Overnight, international trade secretary said Britain must “take control” by seeking trade deals across the world which are impossible within EU arrangements. “It’s very difficult to see how being in a customs union is compatible with having an independent trade policy. The weekend Press is unlikely to be kind to the government, the question is whether it will have any lasting impact on the GBP. The Pound opens this morning in North America at USD1.4225, GBP/AUD1.7810 and GBP/NZD1.9340.