The pound exchange rate was raised slightly in today's trading (21 / February), although it has not been able to erase the successive slump that has occurred since the beginning of the week. When the news was written, GBP / USD traded around the 1.2911 level and briefly set a daily record high at 1.2927.

Markit's preliminary report this afternoon showed an increase in the Purchasing Managers' Index (PMI) score for the manufacturing sector from 50.0 to 51.9 in February 2020; officially cross the threshold between the contraction and expansion areas. The Services PMI score was corrected from 53.9 to 53.3, but this was considered less significant.

More importantly, the composite PMI score is firm at 53.3, not decreasing to 52.8 as previously thought. The conclusion as a whole confirms that the recovery of post-election British economic activity continues. Thus, the data support the decision of the UK central bank (BoE) not to change interest rates at the end of January.

Even the prospect of a cut in BoE interest rates this year will be eroded. However, it is feared that the strengthening of the Pound after the release of this data will only be temporary. Because other uncertainties from the issue of the UK-EU negotiations are still being watched by market participants.

Pound Sterling Falls Against US Dollar

New negotiations will begin next month, but both camps are rumored to be preparing conflicting offers. The only hope of a rebound for the Pound at the moment is if there is a compromise-based comment from one of the opposing parties.

"The rate cut may not be taken into account for a while, due to very promising economic data from the UK. But the upcoming trade negotiations could dampen sentiment, the Pound remains fundamentally undervalued," said Marc-André Fongern, Head of FX Research at Fongern Global Forex.

The pound fell around 0.5 percent versus the US dollar in trading today (20 / February), although UK retail sales data showed a solid rise. Market concerns over the UK-EU trade negotiations, which will begin next month, are increasingly sharp. At the time the news was written, GBP / USD was trading at the level of 1.2867, the lowest record since November 27, 2019.

UK retail sales in January 2020 rose 0.9 percent (Month-over-Month). Retail performance exceeded the estimate pegged at just 0.7 percent, while also consistent with the brilliant economic data released by the UK recently. The December 2019 election results that won PM Boris Johnson, are expected to encourage more consumers to feel relieved and motivated to spend their coffers amid the certainty of Brexit realization at the end of January.

Negotiations, Government Refuses to be Bound by European Union Regulations

However, the positive retail sales data was ignored by the Pound Sterling. Sterling's position is increasingly depressed versus the US Dollar and Euro, although it is still superior to the Japanese Yen which is being flooded with negative sentiment.

Sources of concern for Sterling traders currently center on post-Brexit trade negotiations between the UK and the European Union, which will begin in March. The UK and the European Union are reportedly preparing a draft "offer of a deal" that is mutually contradictory.

The British negotiator, David Frost, this week insisted that the government refused to be bound by European Union regulations in the fields of labor, social, environmental, and fiscal. Though the European Union states that Britain must follow their rules if it wants to trade free tariffs and quota-free between the two regions.

The negotiation process is not a year as previously expected, but only 10 months from March to December. Even the effective negotiation period is likely to be only four months, from July to October, because it takes a long time to persuade the parliaments of the two regions to want to ratify the relevant trade agreement.