Sterling Rebounds As Post-Brexit Fears Subside, Awaits CBI Survey For July

stock market screen
Spencer Platt/Getty

LONDON, July 25 (Reuters) – Sterling inched up on Monday, recovering some of the ground it lost late last week from surveys suggesting Britain was heading towards recession and boosting expectations the Bank of England will have to stimulate growth next month.

Analysts said all eyes would be on the CBI’s Industrial Trends report for July, due at 1000 GMT, which would give more data on the impact of Britain’s June 23 vote to leave the European Union.

Sterling was up 0.2 percent at $1.3140, having fallen nearly 1 percent on Friday. The euro, also was 0.3 percent lower at 83.43 pence, having gained on Friday.

Traders said the bounce in sterling was likely to meet selling at higher levels with markets pricing in chances of at least two rate cuts in the next six months.

“We believe that the softness in the UK economy is likely to be reflected by official post-referendum data as well over the coming weeks, something that could heighten speculation of a potential UK recession being on the horizon,” said Charalambos Pissouros, senior analyst at IronFX Global.

“We expect a combination of weak economic data and expectations for aggressive easing by the BoE in August will keep the pound under selling pressure in the near-term.”

Data on Friday showed “flash” purchasing managers’ indices plunging in the aftermath of the Brexit vote. The survey of services sector purchasing managers fell to 47.4 in July, its steepest drop since records began in 1996 and the lowest reading since March 2009. The manufacturing PMI also fell to 49.1 from 52.1 in June.

Markit said those levels were consistent with the economy shrinking at a quarterly pace of 0.4 percent, a rate of decline not seen since the 2008-09 recession.

Before the PMI surveys, sterling had been supported last week by hawkish comments from two BOE policymakers. Kristin Forbes said on Thursday the central bank should not rush to cut interest rates, mirroring comments from Martin Weale, who also said he was unsure if he would back a rate cut at next month’s meeting.

That was at variance with the opinions of most other rate-setters. The BoE said last week that most of the nine members of its Monetary Policy Committee expected to give the economy more help at their next meeting in early August.

“Even if there is still disagreement amongst members of the BoE Committee, the data available so far is likely to be sufficient for the further monetary policy easing in August,” said Antje Praefcke, currency strategist at Commerzbank.


Please let us know if you're having issues with commenting.