GBP: financial services deal between UK and EU tentatively agreed

The pound had a fine day yesterday, following reports that a financial services deal has been tentatively agreed. The deal would give the UK’s financial services sector continued access to European markets after Brexit, which is obviously a hugely positive step. There are still some creases to be ironed out (hence the use of the word ‘tentatively’), but the two sides are close to an agreement which would benefit both of them.

Sterling soared against the dollar, to the extent that extremely disappointing manufacturing PMI data did nothing to dampen the mood. Having said this, it would be remiss to ignore the fact that Britain’s manufacturers suffered a worrying turnaround and, according to Rob Dobson, Director at IHS Markit, the sector could actually shrink over the course of the next few months.

Other headline-grabbers included the Bank of England’s interest rate decision and accompanying press conference. Governor Mark Carney said that the UK economy could fare much better than it has of late if a smooth Brexit is achieved. Carney suggested that rates could be hiked in the event of a no-deal but, rather unhelpfully, conceded that rates could be cut too.

The construction PMI figure for October will be released this morning. It is expected that the number will nudge down a little to 52.0 from 52.1 the previous month. It will be interesting to see if the reading disappoints to the extent manufacturing did yesterday, although sterling is currently riding the crest of the financial services agreement wave and that looks set to continue for some time yet.