By Kian Songra
This week has been a stellar one for the Pound Sterling. We have experienced 8-year highs midweek on GBP/EUR, ahead of yesterday’s European Central Banks (ECB) interest rate decision.
Yesterday the ECB recently cut its key interest rate by 25 basis points, signalling a cautious approach to monetary policy adjustments. While markets had speculated on a larger cut, the ECB’s move provided temporary relief to the euro, with the multi-year highs on GBP/EUR being pegged back. ECB President Christine Lagarde emphasised a commitment to addressing persist inflation concerns. The speech following the announcement didn’t indicate a dovish stance and it was approached tenderly as investors were looking to pounce on any strong indications from Lagarde.
This morning, we witnessed the UK release the GDP figure, which came out at a shock -0.1%. An increase to 0.1% from the previous -0.1% was the predicted outcome, but evidently the impact of Reeves’ knockout budget announcements has spooked businesses. On both the EUR and USD the Pound has lost 0.5% in the early morning trading session. The last time peaks were reached, the Pound’s glory was short lived, so for those looking to reduce risk ahead of your upcoming currency purchases, should look to discuss your mitigation options with your consultant.
Part of the reason for the euro’s weakness is down to the recent political uncertainties throughout many key European countries, like Germany and France. France’s President Emmanuel Macron will wait until later today before announcing his choice for France’s next prime minister, in a bid to end months of political turmoil. Should this appointment be seen as positive, it may indicate greater certainty for the eurozone, possibly reattracting investors, causing the euro to claw back its losses on its major peers. For Euro sellers this could be the chance to see some hope, and for those with Sterling in hand, should be cautious of potential stability for the Euro.
Across the Pond in the US, yesterday’s Initial Jobless Claims data for the week ending December 6 came in surprisingly higher than expected. Individuals claiming jobless benefits for the first time were 242K, higher than estimates of 220K and the prior release of 225K. The US also posted the November US Consumer Price Index (CPI). The CPI release showed a rise of 0.3% month-over-month, aligning with forecasts but indicating a slight acceleration from the previous 0.2% increase. This recent uptick has adjusted market expectations significantly, reducing hopes for a substantial interest rate cut by the Federal Reserve (FED) in the upcoming meeting. This in turn caused the Dollar to gain on the back that the FED may be taking a more cautious approach in cutting their interest rates.
Trump’s tariff threats are creating noise in the markets and a man of his words could cause significant impact for those in line to be imposed on his first day in the office. These tariffs, particularly targeting China, Canada and the EU, create uncertainty in international trade, strengthening the Dollar as investors seek safer assets.
Eyes will turn to next week’s busy week of data. With significant releases in the UK being unemployment, inflation, retails sales and an interest rate decision. The US FED will also release their interest rate decision, GDP and retails sales figures so be braced for a week of potential volatility.
Stay informed and take advantage of current market conditions and for those with hopes that the Pound will reach the peaks again may be in for a reality check after today’s negative GDP announcement. Call your account manager on 0800 622 6522 to discuss how we can support your currency requirements or register for our currency service if you have not already done so.