On Monday morning Business Secretary Vince Cable has parroted Bank of England Deputy Governor Ben Broadbent in his view on Sterling overvaluation. The Pound has weakened against many of the higher-yielding currencies as a result and is likely to continue on that course with a lack of market-moving data to initiate volatility.
Vince Cable stated; ‘Arguably, the Pound is overvalued by 10 to 15 percent on a trade-weighted basis […] this feeds back into monetary policy. It is a significant problem that we can’t directly address’.
Last week Kristin Forbes, the newest policymaker at the Bank of England, added to the anxieties over the miscorrelation between Sterling value and inflation; ‘The key implication is that Sterling’s appreciation that began early last year is still dampening inflation today’.
The Pound Sterling to Euro exchange rate is currently trending in the region of 1.2737. Movement is around -0.16% which is surprising considering that German data could have been better on Monday. This highlights the potentially detrimental effect of an overvalued currency on inflationary pressure. Furthermore Cable argues that the high value of Sterling has stalled exportation which, in turn, is weighing heavily on economic growth.
The Pound Sterling to US Dollar exchange rate is currently trending in the region of 1.5974. Movement has been negligible which is likely as a result of the complete absence of US data on Monday.
The solitary economic data publication pertaining to the UK on Monday doesn’t hold enough weighting to influence wider-market movement. Yearly New Car Registrations increased by 5.6% in September following August’s 9.4% gain.
Pound Sterling (GBP) Forecast to Soften
Given that several Bank of England policymakers, and now Vince Cable, have suggested that the British economy is struggling from Sterling overvaluation; it is likely that traders will react by pulling away from the Pound.
On Tuesday, however, there are several influential domestic publications which are likely to spark changes for the British currency. Yearly Industrial Production is expected to increase from the 1.7% growth in July to 2.6% in August. Similarly Manufacturing Production is forecast to improve upon the previous growth of 2.2%, with Augusts’ output at 3.4%. Should the data come in line with the market consensuses it will be hard for traders to ignore and Sterling could potentially appreciate.
However, it is also possible that traders will await the Gross Domestic Product data which will be due later on Tuesday afternoon. A positive score will almost certainly cause a Sterling uptrend.
The Pound Sterling to Euro (GBP/EUR) exchange rate has hit a low of 1.2735 and a high of 1.2770.
