Pound's rally may be over

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The British pound is under further pressure today, following on from last Friday’s losses on the back of disappointing local data and for the time being its seems as if the recent rally in the British currency is coming to a halt.

This is the 2nd time in as many weeks where data out of the UK has failed to meet expectations and many now believe that the Bank of England may hold off on raising rates in fear of derailing the overall recovery of the economy.

At the economic forum in Davos last week, BOE Governor Mark Carney noted that further rate hikes would be dependent on positive economic data as well the success of Brexit negotiations, of which both at this time are looking a little shaky.

Government ministers noted over the weekend that it would be impossible for Britain to remain in the customs union after the UK leaves the EU and instead will pursue its own trade deals on a case by case basis.

The recent strength of the pound has in part being closely connected with future rate hikes so this Thursday’s rate decision from the BOE will be critical for the pound and whether further losses lay ahead.

No changes in rates are expected in the decision on Thursday but the following statement will be closely monitored and if there is no mention of a future rate rise we could investors exit the sterling.

“For the pound to strengthen more notably in the near-term, the BoE would have to deliver a clear signal that it is actively considering an earlier rate hike,” said Lee Hardman, strategist at MUFG.

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