By Luke Dyson
So far this week we have seen Sterling lose some ground against the Euro. The Pound had been experiencing a better period over the last few weeks having recovered following the crash due to President Trump’s tariff upheaval. However it now looks like Sterling’s strength against the single currency has started to run out of steam.
Since the market open on Monday Sterling has lost just over a cent against the Euro mainly down to two factors…
Firstly, yesterday we saw the latest German ZEW economic sentiment index significantly increase to 47.5. Massively exceeding the forecast of 35 but also nearly doubling the previous reading for May of 25.2. This large jump indicates the significant increase in sentiment towards the economy in Germany and has given the Euro some reasonable strength and allowed it to drive higher.
Secondly, this morning we had the consumer price index inflation figure for the UK released. This come in at 3.4% as forecast, slightly below the previous reading of 3.5%.
Later this week we have the Bank of England interest rate decision at 12:00 on the 19th June, which will take the inflation data into account and then adjust the interest rate accordingly. With inflation coming down slightly this opens the door to the idea of interest rate cuts again, which is generally Sterling-negative, and as a result this weighed heavily on the Pound.
In addition, given the ongoing uncertainty with the US’s tariffs and also their involvement in multiple military conflicts, it has created significant amounts of pressure on the Dollar and It is now becoming increasingly likely that the Euro could take over from the Dollar as the stable safe haven currency of choice that investors are looking for.
This isn’t likely to happen straight away, as ECB President Lagarde has stated there are three key pillars Europe needs to strengthen in order to take control of this opportunity. These being geopolitical credibility, economic resilience and institutional integrity. Although a long-term opportunity for Europe and the Euro, this could have a significant impact on Sterling to Euro exchange rates in the future.
With where the market is at present for Sterling against the Euro , it is still a good buying opportunity given where the market has been previously and the current data that has been released. If you have an up and coming currency requirement please get in touch with your currency consultant to discuss this further and get a strategy in place to best suit your needs.