Why has the pound shrugged off Theresa May's EU argy-bargy? | Nils Pratley

Are currency markets living in a different galaxy, as they say in Brussels? A single dinner at Downing Street has provoked verbal warfare between Theresa May and her EU negotiating partners-cum-foes, seemingly increasing the chances of a hard Brexit that almost everybody agrees would be bad news for the pound. Meanwhile, we learned last week that growth in the UK economy slowed sharply in the first three months of this year as inflation started to bite. So sterling ought to be falling, or at least wobbling, right?

It’s not. The pound shot up from $1.25 to $1.28 after the prime minister called the general election a fortnight ago and has barely moved since. At $1.29 on Thursday, it remains the best-performing major currency against the dollar in the past month.

Does this make sense? Actually, it probably does, for three reasons. First, the UK economic data is mixed, rather than outright poor, at least on a short-term view. The services sector, which is about 76% of the economy, enjoyed its fastest growth for four months in April, according to surveys. For firms that export their services, it seems the benefit from last year’s post-referendum fall in the pound from $1.50 is arriving. That is reassuring, even if digesting the accompanying inflation will be painful.


By Nils Pratley.
Full story at Yahoo News.