Sterling retreated from a three-week high against the dollar today ahead of the third and most important of a batch of purchasing manager surveys that offer the best clues so far of the blow to the economy from June’s Brexit vote.
GBP Markit/CIPS UK Services PMI 47.4 47.4 47.4
GBP Markit/CIPS UK Composite PMI 47.5 47.7 47.7
The services PMI came out on par, however, the Composite PMI came in lower than expected.
All, however, point to some degree of contraction in the economy in the months ahead and another poor survey would sharpen expectations for the scale of policy easing expected from the Bank of England on Thursday.
We expect more weakness in sterling we believe that the pound will fall to $1.20 over the next three months before recovering to $1.25 in a year’s time.
Most major banks hold similar views, but the plethora of bets against the pound – at their highest on record according to U.S. futures data – has made weakening the currency a hard road since early July.
The Bank is expected to cut interest rates for the first time since 2009 and some are also forecasting it will announce a substantial expansion of its bond-buying programme.
Tomorrow will be a key indication to which way the pound will go over the coming months.