By Matthew Boyle
Earlier this week UK unemployment data helped begin a resurgence for Sterling with the headline rate being held at 4.7%, whilst wage growth showing at 5% year on year. This resurgence in Sterling’s fortune was further helped yesterday with the release of UK Q2 GDP figures showing the UK’s economy grew 0.4% in June – breaking a previous negative figure and coming in above the expected figure of 0.1% growth.
The result has seen market expectations shift towards impending Bank of England rate cuts this year as it is thought the BoE may hold back if inflation remains high if the economy is performing better. As such the positive unemployment and GDP readings have reduced the likelihood of a cut in November to around 40%, and allowed the Pound to regain some lost ground against the Euro taking it to multi month highs.
Whilst the ECB are not expected to cut rates until December you might expect the single currency to remain strong in the coming months.
And with the UK autumn Budget looming and increasing media reports surrounding tax hikes to plug a 50 billion deficit, it may not be long until the Pound comes under pressure again.
This morning we have already seen GBP>EUR rates dip by around 30 pips – is this a sign of overbearing negative sentiment and more losses for the Pound?
Across the pond, and despite US inflation moving up this week, bets are on that the Federal Reserve will cut interest rates for the US dollar next month. This combined with Trump’s increasingly aggressive programme of tariffs has seen the dollar weaken significantly over recent months with EUR/USD at multi month highs and GBP/USD close to the highest in several years.
It seems focus is firmly fixed again towards the central banks and government economic policy. Whilst the Pound is currently seemingly performing well it is likely to come under some pressure in the coming months, particularly as we approach the Budget. Next month’s inflation, unemployment, and GDP readings will be crucial for rates in the coming months.
Those with upcoming requirements to buy Euros may like to consider looking at options now with buying rates at recent peak levels.
Sellers will want to take care as any delays or further pricing out of the next BoE rate cut could tip what seem finely balanced scales for GBP / EUR even more, particularly if the ECB stay fixed on cutting in December.
With the week’s remaining data this week focused on the US as they post retail sale data and the Michigan Consumer report this afternoon, expect fluctuations in USD rates.
Today the eyes of the world will be watching the US as Trump and Putin meet in Alaska for what seems a West vs East showdown. These talks could certainly shift the path of the greenback should Putin snub Trump’s attempts to broker a deal, or if Trump can somehow manage to table an agreement with the Russian leader.
Should you have an upcoming requirement speak to your currency consultant today for some guidance on some of the ways in which we can help reduce risk of adverse market movements increasing your cost, and help you make your money go further.