Pound slides as dire post-Brexit forecasts published

After some respite yesterday there’s more selling seen in the pound today with the currency sliding across the board. Negative assessments on future growth prospects post-Brexit from  chancellor Philip Hammond and the Bank of England have unsurprisingly drawn widespread criticism from Brexiteers, but while they may have a case in claiming the forecasts are overly gloomy, at the moment there’s nothing but wishful thinking to suggest the economy won’t slow significantly. The pound has fallen back below the $1.28 handle following a brief flurry higher yesterday evening after Fed chair Powell hinted that the bank may pursue a less hawkish policy going forward, with the remarks causing a swoon lower in the greenback. The FTSE has had a quiet week so far but is looking to edge higher, with the benchmark gaining around 40 points as it looks to firm up above the 7000 mark.

Central Bankers under political pressure

The Bank of England have warned that leaving the EU with no deal and no transition period could lead to the sharpest drop in national income since the second world war in an economic assessment that has once more seen the body accused of letting political bias cloud their judgement. Critics are quick to point out that the gloomy forecasts issued by the bank in the event of leave winning the 2016 referendum have thus far failed to materialise although this shouldn’t be too surprising seeing as the UK is yet to leave the EU and the shock was cushioned somewhat by their swift actions in easing policy.

Central bank independence is once more being called into question but it’s quite clear that governor Carney and his colleagues are in a position where they’re damned if they do and damned if they don’t when it comes to offering forecasts on Brexit. It is worth viewing the projections in greater detail and when you consider that these are over a 5-year horizon there’s little doubt that a no deal, no transition scenario is the worst of all outcomes and would certainly weigh on the economy in this period.

Across the pond Fed chair Jerome Powell will likely sympathise with Carney’s predicament as he himself is facing criticism after what appeared to be a decidedly dovish speech in New York. Powell surprised the markets by stating that US interest rates are “just below” neutral levels in what appears to be a pretty dramatic shift from his comments last month that claimed they were still a “long way” from neutral. Why these remarks are causing quite a stir is due to the clear pressure Trump has been putting on the bank to stop, or at least slow down, their pace of rate hikes with the president tweeting on the matter and openly criticising Powell earlier this week.  

Oil falls below $50 a barrel

There’s been further downside seen in the price of Oil today, with the US benchmark WTI falling below the big psychological level of $50 per barrel. The market has plunged since the start of October by more than 35% in what has been one of the biggest moves of the year, and there’s little suggest it is done quite yet. Price is on course for an 8th consecutive weekly decline, a sequence that is 2nd only to the fall seen in mid-2015 (10 weekly losses in a row) in terms of being the longest losing run in recent years. Speculation is mounting that OPEC will deliver an output cut when they convene for their bi-annual meeting in Vienna next week, but whether it will be enough to stem the slide remains unknown.