May misses and opportunity to boost investor confidence
On Friday we Theresa May speaking Florence in regards to the current stance for Brexit talks. It was widely anticipated that she would provide some form of clarity on how negotiations are set to proceed. We expected to hear on the amount the UK were set to pay to leave the EU, time scale and whether we would be looking at a hard or soft Brexit. This was a clear opportunity for May to calm investors and give a positive outlook on the pending negotiations, she failed. GBP dropped in value following a fall in investor confidence with negotiations now looking to take a lot longer than the two year target. May also announced “no deal was better than a bad deal.” The potential o fa rate hike is what is causing Sterling to gain strength, however I am of the opinion this is not justified. Wage growth is down, inflation is up and unemployment data is not as impressive as some perceive sue to the introduction of zero hour contracts.
Governor of the RBA not convinced on the health of the Australian Economy
We have seen GBP/AUD above 1.70 today which is a key resistance point. There is still room for potential gains for the pound against the Aussie, although I do not think we will breach 1.75 short term. The governor of the Reserve Bank of Australia, Philip Lowe is not as optimistic as some in regards to the future of the Australian economy. Iron ore, Australia’s primary export is is down in value and Australia’s biggest trade partner, China have recently has their credit rating down graded. Australia also has a similar problem to the UK with wage growth down. If there are rapid rises inflation this could cause problems, if consumers can’t afford to pay over inflated prices the economy will suffer.
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