What's next for the pound

MUFG Research discusses GBP outlook and maintains a structural bullish bias in the medium-term.

"The recent outperformance of the pound reflects in part building optimism that the UK will avoid the looming cliff edge risk by delaying Brexit.

The current elevated level of Brexit uncertainty has understandably overshadowed the latest economic data releases from the UK. The release yesterday of the latest labour market report provided some reassuring news that it remains a bright light for the UK economy. The report revealed that the economy added a solid 141k jobs in the three months to November and the unemployment rate dropped to 4.0%. The tightness in the labour market is now having more impact at lifting wage growth which reached an annual rate of 3.4%. Real wage growth adjusted for inflation which is fastest rate since the Brexit referendum, MUFG notes.

"The developments support the BoE's plans for further gradual monetary tightening if a "No Deal" Brexit is avoided, and a stronger pound," MUFG adds.

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