GBPUSD Pair Edges Higher But Remains Weak Performer

Binary options traders have seen little in the way of extreme volatility with the GBP in recent days. Fact, the currency has edged 0.13% higher over the past 5 trading days. The GBP/USD pair is currently trading at 1.2230, down 0.04% or $0.0006. The day’s range has hovered between 1.221 and 1.228. Viewed over the long-term, the 52-week trading range of the currency is 1.21 on the low end and 1.54 on the high end. Over the past 1 month, the currency pair shed 5.70%, allowing the GBP to become the worst performing currency for October. In fact, the news indicates that the GBP finished last behind 150 competing currencies.

Bloomberg has been tracking the performance of global currencies against the greenback and the strongest top 4 performers include the Suriname Dollar, the Mexican Peso, the Seychelles Rupee, and the Zambian Kwacha. At the bottom of the list is the British pound, followed by the Swedish Krona, the Romanian Leu and the Colombian Peso. Analysts are now starting to question how dramatically a Brexit will impact the sterling. These preliminary signs are proving catastrophic for the British currency, and the worst is yet to come. Prime Minister Theresa May has yet to invoke Article 50 of the Lisbon Treaty which formally begins proceedings to divorce from the European Union.

BOE inflation report and Governor Mark Carney

October 2016 marks the biggest depreciation of the GBP versus USD. The pair plunged significantly after the June 23 Brexit decision, but GBP weakness is pervasive. It is likely that the British government will opt for a hard Brexit to maintain control of its borders. Trade will be sacrificed for security, and this is negatively affecting the currency. The GBP has been rocked by calls for Governor Mark Carney of the Bank of England to resign, and he in fact announced that he would be serving until June 2019. While the GBP initially rallied on the news, it quickly settled into bearish territory.

Many are questioning the U.K.’s future relationship with the European Union, and what it will look like. During June 2016, the GBP dropped 8.1% against the greenback. For October, the decline edged towards 6.2%. This is the seventh consecutive month of declines for the sterling, and this has contributed to an almost 20% depreciation for the year-to-date. On Thursday, 3 November 2016, the BOE will announce its interest-rate decision. Additionally, the quarterly inflation report will be revealed.

How is a Weak GBP Good for UK Manufacturing?

According to the latest purchasing managers index (PMI) data, UK businesses have been subject to sharp price rises recently. The plunging GBP has helped to boost UK exports, but the problem is the increasing purchasing costs for those manufacturing businesses. According to Markit/CIPS data, the PMI for manufacturing plunged to 54.3 in October, from 55.5 in September.

However, there is some good news on the horizon in that any figure above 50 represents an expansionary economy and bullish sentiment. Approximately 10% of the UK economy is made up of manufacturing. Higher domestic demand and higher international demand helped to raise the volume of new orders in the UK. The problem remains on the buying side for UK manufacturers.

Rising costs for UK manufacturers are not necessarily offset by stronger exports. Rising import costs are creating additional pressures on the beleaguered UK economy. Now, consumers are faced with higher prices. In October, manufactured goods rose by the steepest margin for more than 5 years. According to the ONS (Office for National Statistics), manufacturing capacity declined by 1% in Q3 2016.

But, the same office believes that Q4 GDP growth will expand as manufacturing adds more value to GDP growth. The BOE is pleased with rising inflation, as September figures showed a 1% increase year-on-year, significantly lower than the 2% target set by the Bank of England. There are concerns that everyday Britons will not be able to afford rising prices as a result of a weak GBP.