ECB Surprise Rocks Sterling

By Ashley Finill

Last week saw Sterling lose considerable ground against the Euro as the European Central Bank struck a surprise announcement last Thursday on their outlook on the current state of economy in the EU. Christine Lagarde spoke after the ECB meeting and expressed that herself and members of the council felt an “unanimous concern about inflation” in which levels rose to 5.1% in January. This strongly hinted at a potential rate rise for the Eurozone which has now seemingly been priced into the market. The Bank of England also met on Thursday and as expected raised interest rates in the UK to try and curb the alarming rise in inflation as it recently hit 30-year highs. This provided the pound with a boost gaining just over half a cent on the Euro, however those gains were quickly scuppered within an hour due to ECB’s announcement shortly afterwards. Sterling then went on to lose a cent and a half against the Euro and by the close of business, with the drop not stopping there as during trading on Friday Sterling lost a further cent come the afternoon. With energy prices doubling in the UK the inflation figure is likely to continue rising and with the Bank of England raising interest rates on two separate occasions it may be unlikely for another rate hike this year as historically the BoE have been stubborn to raise interest rates in the UK, but with the pandemic crippling the economy it has somewhat forced their hand, so a third increase may be unlikely for the foreseeable future which may bring pressure on the fragile pound should the economy continue inflate over the coming months.

Is Time Up for Boris?

This week Boris Johnson is likely to remain hot under the collar as pressure is mounting on the Prime Minister over the numerous parties held at Number 10 over the course of the pandemic when the nation was under strict lockdown rules. Last week four of Boris’s loyal aides resigned after he made an accusation towards the labour leader Keir Starmer in the house of commons at Prime Minister’s Questions. This seemingly caused a domino effect as that evening Munira Mirza resigned after standing by Johnson’s side for 16 years, three more followed the morning after. Then came letters of no confidence from his own party being submitted throughout the course of the week and reports suggest that there are more to follow. Can Boris survive this loss of confidence amongst some of his party members or is his time up? One thing we do know is uncertainty is not Sterling’s friend and last week’s exodus is likely to have played an integral part of investors’ thinking, and could be why Sterling has fallen sharply in the past 72 hours. Should you have a Euro requirement in the coming weeks then speak to your currency consultant about your options and to not get caught out in the current unpredictability of the currency market.

Data this week

On the data front and it’s a quiet start with little data to note until Thursday which see the UK release the NIESR GDP estimate. At 9am the European Commission release Economic growth forecasts. Over to the US at 1.30pm as Consumer Price Index and Initial jobless claims are posted. On to Friday, at 7am the UK will record it’s Gross Domestic Product, industrial production and manufacturing production and to finish off the week over in the US the Michigan consumer sentiment index is posed at 3pm followed by the Federal Reserve releasing the monetary policy report at 4pm.