The currency markets have shown little if any response to the news that the UK will seek a transitional arrangement of some kind to cover customs after the country leaves the EU. (Here’s the full story on that.)
But the pound, while a little higher against the euro, is going nowhere at all against the dollar. As we’ve previously written, this may be because traders and investors are bored of thinking about politics. (Also, in case you hadn’t noticed, it’s August.)
Jordan Rochester, an analyst at Nomura, writes today that he expects sterling to keep sliding against the euro:
There was a time when sterling would have meaningfully rallied on the news overnight, but it seems not.
The reason why it may not have rallied is we have to remember a) the majority of the UK exports are in services which this does not address and that b) that for the most part, the UK continues to negotiate with itself rather than any meaningful dialogue with the EU thus far.
The EU have consistently said that no future talks would start until the exit arrangements are made clearer.
UK inflation data are coming up at 0930 BST. Economists are expecting to see the annual rate pick up slightly to 2.7 per cent, from 2.6 per cent.
The last Bank of England inflation report in early August suggests that nothing is going to change about UK interest rates for now. The MPC is likely to have been relieved that overall inflation recently moved further away from the 3% mark. In July prices are likely to have remained virtually unchanged. As long as there is no indication that the share of inflation caused by higher import prices (due to sterling weakness) will cause inflation to rise permanently and as long as wages don’t rise, the BoE will refrain from raising interest rates. The economic prospects are simply too uncertain against the background of the Brexit negotiations. So sterling is unlikely to gain support on this front.