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12 Jul 2016

Theresa May Is Already Good for the Pound

Global markets are simply panting for good news and are pleased to see a pair of improvements that are soothing market uncertainty. Apparently, the news that Larry, the #1 mouser at Number 10 is a ‘remainer’, was also received with some relief.

US Jobs Growth Buoys Global markets

First the US Jobs report was released showing that although unemployment levels are still higher than hoped for, the US created 287,000 jobs in June, a dramatic improvement over May’s dismal figures of 11,000 new positions. U.S. average hourly earnings for private nonfarm payroll employees moved 2 cents higher in June to $25.61 or £19.80.

This eases global fears that the world’s largest economy was sinking back into a recession. However, economists note that these figures don’t reflect any knock on effects of Brexit, as the report was a snapshot of the mid-June markets.

The improvement sent stocks surging, reclaiming much of the losses seen on June 23 after the surprise vote results sent global markets into a tailspin. It is anticipated that the Fed will delay any anticipated hike in interest rates, awaiting news of any negative effects the referendum will have had on the US economy. Bank of America Merrill Lynch economist Ethan Harris expects the central bank to refrain from making any increases until December, indicating increased caution regarding any monetary adjustments policy.

Theresa May Moves into Number 10 

News that the political turmoil that has plagued the UK since David Cameron’s resignation will be put to rest, clearly had a positive effect on the markets. Even as rumours circulated that pro-Brexit Andrea Leadsom was quitting the contest to be PM, the pound rose to $1.30 against the US dollar. Theresa May is seen as more experienced, and is certainly more EU-friendly. “Theresa May’s virtual ‘coronation’ as prime minister has delivered a boost to the pound as the clouds of uncertainty following the Brexit vote start to disperse,” said Neil Wilson, markets analyst at ETX Capital.

“The leadership question has been settled and two months earlier than markets had been anticipating. This is feeding into strong bids for sterling and property stocks as investors eye potential bargains.”

Bank of England Interest Rates Will Knock Pound Back Down

Later the pound rose above $1.31, an increase of 1.3% against the dollar.  Sterling gained 1% against the euro at €1.1874 making improvements, however slight on both currency pairs. This may be the best exchange rates we’ll see in near future, however.

Bank of England’s Mark Carney is expected to cut interest rates to a record low of 0.25% this Thursday but should he decide to reduce the rates to zero, the forecast is that it will cut any gains the pound has made. The window to make a transfer is very close, indeed!