Paul Sirani, Chief Analyst at Xtrade, gives his GBP outlook for 2017…

Political events continue to override the influence of economic data and this is no more apparent than in the UK right now.

Recent economic numbers have been rosy, with Q3 Net Consumer Credit clocking in at an 11-year high, and strong quarterly retail spending growth also performing impressively. However, that’s just a fading ray of light in what looks to be a very dark and stormy 2017 for the UK economy.

The Brexit conundrum looks set to linger much longer than many anticipated, with no swift resolution likely, and that’s holding the pound back more than anything else.

Prime Minister Theresa May looks to be leaning on the side of a ‘Hard Brexit’, making a full withdrawal from the single market likely. The reaction to that has been prickly.

HSBC, for example, has suggested a break away from barrier-free trade with Europe could see them hop The Channel and pitch up their HQs elsewhere, leaving businesses and jobs at risk.

Until March, the prospect of a Supreme Court decision in the Government’s favour is likely to starve off any enthusiasm for the pound. Further still, if the ruling does hand May the power to trigger the all-important Article 50, then the pound could drop sharply. Analysts will be taking a wait-and-see approach here.

Overall, the forecast is for sterling to continue to show signs of weakness against the dollar. Any near-term recovery against the Trump trade is doubtful, and a continued drift lower likely.

Though traders are likely to sit on their hands and wait for Trump to elaborate on his economic plans before taking a run at the dollar, the world’s largest economy arguably holds a firmer footing than the UK and Europe heading into the new year, and the prospects for its currency look more stable.

On the continent, look for GBP to maintain its relative strength against the euro and to rise upon anything dramatically untoward.

There are significant issues for the single currency, with competitive and contentious elections on the continent coupled with an ill Italian banking sector facing a number of perils. However, inflation creeping up of late will certainly be a welcome development for ECB boss Mario Draghi, who has been trying to pump life into the eurozone for some time.

But, again, it’s the political events that are causing a stir on the trading floors. Elections in France, Germany and the Netherlands will heighten the feeling of instability and unpredictability across the region and it’s difficult to see the euro making any ground on the pound in the short-term.

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