British Pound Could Gain as Traders Pare Back Rate Cut Expectations

Despite dour economic data, the British Pound has room to rise in the near term. . Considering the calendar is not set to offer anything blatantly worse than what has already been priced into the exchange rate, a moderation in rate cut expectations gives sterling some room for a corrective upswing.

The Trade Balance report headlines the economic calendar in the week ahead, with expectations calling for the deficit to narrow in November to -£7.5 billion. The rapid depreciation of the British Pound is likely to be a key contributor, making UK products substantially cheaper for overseas buyers and boosting exports. Indeed, Sterling lost 3.26% against the Euro and 2.87% against the US Dollar in November. Cumulatively, the US and the Euro Zone account for well over 60% of all UK cross-border sales. Meanwhile, imports have likely declined as consumers cut back spending on both domestic and foreign-made products.

Last week, we saw consumer confidence fall to a record low as economic growth turned sluggish, sending unemployment higher all the while tumbling home values and stock prices produced large negative wealth effects. These very trends are up to be on display again both with December’s BRC Retail Sales Monitor and RICS House Price Balance survey, with the latter expected to show that 74% of those polled reported falling property values.

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