Critical week for the Pound ahead

By Matthew Boyle

It was the US Dollar that was the market mover last week as Wednesday’s US inflation report showing inflation in the States is still on the rise – up to 3.5% from a previous 3.2%. The result of this saw speculation of a Fed interest rate cut in June all but scrapped and set against expectations of upcoming cute by the BoE and ECB this saw the Greenback gain ground rapidly against the Pound and single currency, with it gaining around 1.5 cents and a 1 cent respectively by the end of the day’s trading.

Whilst USD volatility drove big swings across the board, GBP/EUR remained relatively flat. However, with speculation also fading that the ECB will cut rates next month, GBP>EUR buying rates moved within half a cent of the peak of its established range, moving close to the best they have been in 18 months.

This week the focus will be the Pound with several big data releases ahead – UK unemployment data on Tuesday, a speech by BoE Governor Bailey, and UK inflation on Wednesday. All three are heavily linked with interest rates and determine if/when we might see a rate cut by the Bank of England and so it is a critical week for the Pound.

Whilst last year the main driver of exchange rates was the central banks hiking rates, this year it is which of the 3 central banks will now cut interest rates first.

And so, with bets that the Fed and ECB cutting rates in the short term now seemingly coming off the table, positive data this week is likely to serve the Pound well.

Friday rounds up the busy week of GBP focussed data with retail sales – another significant release, so we could be in for a bumpy ride.

Given the advances the Dollar made last week don’t be surprised to see volatility, particularly In GBP/USD rates with profit taking and a market correction likely.

Readers buying Euros may like to consider acting this week, particularly if we see the Pound touch the peak of what would be 18-month highs. During this time, we have failed to see GBP>EUR rates break up to higher exchange rates on 5 occasions and following each attempt it has then not re-tested the ceiling for at least a month.

Given the Pound’s current position and as the central banks’ race to cut rates heats up, this week could offer the last opportunity for some time to take advantage of GBP/EUR rates at these levels. Speak to your consultant at A Place in the Sun Currency today for some friendly and professional guidance on how to save money, manage and get the most out of your currency transfer.