The British Pound had an up and down week and finished just above the mid-point of its range against the US Dollar. GBP/USD began the New year at 1.3515 and amidst a general sense of optimism around the prospects for a Brexit trade deal and with many banks favouring long-GBP as their top currency trade for 2018, it raced up to a high early n Wednesday morning of 1.3508. From then on it was a rapid slide back down to 1.3500 on a combination of poor UK construction data and very strong US numbers ahead of the FOMC Minutes.
On Thursday, the GBP was well-bid as the UK Services PMI Business Activity Index registered 54.2 in December, up from 53.8 in the previous month, to signal the second-fastest upturn in service sector output since April 2017. Higher levels of business activity have now been recorded for seventeen months running, supported by the resilient economic backdrop and rising consumer spending. However, service providers noted that Brexit-related uncertainty continued to hold back clients’ willingness to spend at the end of 2017. Friday, however, brought a very poor but not unexpected set of new car registration data. Contrary to popular perceptions about the UK car manufacturing, based on memories of the chaos in the 1970’s and subsequent decline, the automotive industry is one of the economy’s key sectors. It employs more than 800,000 people, 165,000 in manufacturing. The Treasury is dependent on a healthy new car market, relying on £5.5 billion in annual revenues from vehicle excise duty and even more from VAT on sales. The latest figures showed UK car sales declined in 2017 after five years of rapid growth. Total sales for last year were 2.54m new vehicles, a decline of 5.6% on 2016, with diesel sales dropping 17%. The Society of Motor Manufacturers and Traders (SMMT), the UK automotive industry’s trade body, has forecast a further 5% to 7% decline in sales in 2018. The pound ended the week at USD1.3565. Overall it rose against the USD and EUR but fell against the AUD, NZD and CAD.