GBP continues to drag its heels

By Lauren Buckner

The market continues to look for direction and GBP consolidates in an ever tightening range against both the Euro and US Dollar.

Still stubbornly refusing to break away from the range of the last six months, the Pounds steady decline from the top to the bottom of the recent ranges could be a cause for concern for those with Sterling in hand.

UK economic data continues to highlight weaknesses in UK plc with a slowing housing market, stubbornly high inflation and slowing retail sales. Consumers continue to bear the brunt of the cost of living crisis which is dampening any growth expectations for the UK and as oil/energy prices start to creep back up at the worst possible time (temperatures dropping and heating being switched on) it looks as the final quarter of 2023 could continue to sit heavily on our finances.

Versus the euro the Pound has been testing the bottom edge of the range over recent weeks and for now moves sideways in this ever decreasing range. However, it’s the steady decline in value versus the USD since early August which is most telling. The USD strength is a sign of nervousness amongst traders as they bide their time in a ‘safe haven’ amid a backdrop of global conflict and concern coupled with the real concern that we could see a significant shift in exchange rates at any moment.

As we head towards next Thursday and the Bank of England’s next decision on UK interest rates the uncertainty surrounding Sterling is likely to continue, and it’s a brave soul that takes a punt on this race. With inflation refusing to move from 6.7pc in readings earlier this month the Bank of England’s next move becomes harder to predict. Perhaps a double edged sword for the Pound with an impossible decision for the BofE to take.

As the UK data showed an increase in unemployment yesterday, there is arguably an increase in the chance of interest rates being held which cuts the cord on any GBP strength however, it does little to attack the high inflation rate which still sits over 3 times the Bank’s target. Raising interest rates further will pile more immediate pressure on consumer spending and could curtail any economic recovery that we are seeing – both difficult scenarios for Sterling to overcome and an almost impossible decision for the Bank.

The more immediate concern however will be tomorrow’s interest rate announcement from the European Central Bank who are widely expected to hold interest rates as both inflation and growth in the bloc continue to decline. The EU economic recovery from the pandemic has been cautious and slower than the UK but Lagarde has steered a steady ship in the right direction which gives further wind to any Euro strength in current conditions. Friday sees a relatively quiet day in terms of data at the EU leaders summit begins.

As we head towards the change in clocks and darker evenings GBP is feeling the pressure, be wary that a stagnant trading range can lead to exaggerated moves when finally breaking and keep a tight check on budgets! Our team are on hand to discuss ways in which to protect yourself during times of uncertainty, please touch base today to discuss your upcoming requirements.