Pound Sterling GBP Forecast Hinges on Oil Price

January 13, 2016 - Written by John Cameron

STORY LINK Pound Sterling GBP Forecast Hinges on Oil Price

Pound Sterling to US Dollar Conversion Rate Hits Over 5-Year Low

The Pound Sterling (currency : GBP) endured another dismal session yesterday. The move against the UK unit sent the Pound US Dollar exchange rate down to 1.4408 - its lowest level for five and a half years, while the Sterling euro exchange rate also plumbed the bottom of its recent trading range, plunging to an intraday low of 1.3258 GBP EUR during the middle part of the European equities session.

UK Production Data Sends GBP Exchange Rate Reeling Vs EUR, USD, AUD, NZD

The Pound came under renewed selling pressure against the other sixteen most actively traded global currencies when November’s UK Industrial Production and Manufacturing Production numbers were published at 0930hrs GMT. Both figures missed their anticipated level to the downside, but the Industrial Production result was the most detrimental to Sterling, revealing a month-on-month decrease of 0.7%. This was the worst monthly result for the figure for almost three years, providing further evidence that Britain’s economic recovery is beginning to lose traction.

Analysing the numbers, Capital Economics noted that, ‘after a dire performance through much of 2015, November's industrial production figures suggest no change in the manufacturing sector's fortunes.’ The data does not bode well for the Q4 2015 UK Gross Domestic Product number, which is due to be published during the final week of this month.

Crude Oil Hits Fresh Low, UK Rate Hike Bets Dip With Pound Sterling (GBP)

Yesterday’s afternoon session provided a reminder of another significant drag on the Pound, when the price of a barrel of Brent Crude Oil slipped to yet another fresh multi-year low. The intraday nadir of $30.34 for the asking price of a barrel of ‘black gold’ marked a near 12-year low and the steady slide in wholesale oil prices over the last 18 months makes any UK interest rate hike a distant prospect.

Conventional wisdom holds that oil prices will need to bottom out and head Northwards once more, sending UK inflation up towards the Bank of England’s target of 2.0%, before any UK policy tightening can take place. Consequently, the Pound is forecast to struggle across the board until oil gains some measure of support.

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