Are Sterling Traders Overlooking UK Economic Reslience?

Pound investors are increasingly ignoring signs of strength in the U.K. economy as political risk surrounding the nation’s exit from the European Union dominates the currency’s outlook.

The pound showed little reaction on Thursday immediately after a gauge of the country’s services sector beat the median forecast of economists in December, rising at the fastest pace in more than a year. The initial muted reaction marked a contrast to data in the immediate aftermath of June’s referendum, when smaller beats, or even reports that matched estimates, were enough to cause a bigger reaction.

With Prime Minister Theresa May’s self-imposed March deadline for formally triggering the U.K.’s exit fast approaching, the better-than-expected performance of the economy has been overlooked, with bigger swings in the currency coming after relatively minor developments in the nation’s path out the the trading bloc. The pound has fallen about 17 percent since the decision to quit the European Union, and dropped to $1.22 on Tuesday, the lowest since Oct. 31.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.