Brexit in a week from 18/2 - 23/2/2020

Last week, Great Britain surprised by very good macroeconomic data. The pound, however, did not react much to them and tended to balance on significant support. Will it break through and weaken this week? Or will consolidation continue in the upward trend? More details in our article.

Fundamental analysis

Last week was very positive for the British pound. Firstly, data on employment were reported on Tuesday, when the number of unemployed was 5,500 persons compared to the expected 22,600 persons. At the same time, the change in employed persons reached the level of 180 thousand compared to the expected 145 thousand.

Inflation data also pleasantly surprised when inflation reached 1.8% on a year-on-year basis (1.3% in the previous period). Retail sales data were presented on Thursday, with a month-on-month increase of 0.9%  compared to the previous 0.5%. Friday's PMI data were also very positive, with the PMI in manufacturing reaching 51.9 (50.0 in the previous period) and PMI in services was 53.3 (53.9 in the previous period).

Outside the UK, it was interesting to watch Eurozone data. The German economic sentiment indicator ZEW stood at 8.7 and shows a deterioration in confidence in the economy compared to the previous period when it reached 26.7. PMI data from the euro area, on the other hand, were very surprised when the PMI in manufacturing reached 49.1 (in the previous period it was 47.9) and in the service sector reached 52.8 compared to the previous 52.5.

But the British pound did not respond very positively to these positive data. The main reason for this is that Britain has so far declared its readiness to trade with the EU under the terms of the World Trade Organization (WTO) after the end of the transition period, which would mean the introduction of tariff barriers. If this rhetoric continues, the pound will be negatively affected and the potential for its strengthening is limit.