Has the Pound reached its peak?

By Matthew Vassallo

The Pound had another strong week as it once again touched on an 11-month high against the Euro, giving those individuals holding Sterling another chance to maximise their returns against the single currency. Whilst there was no aggressive retraction from that threshold, GBP failed to kick on above this level, which not for the first time this year remains something of a glass ceiling for the pair.

The initial positive reaction by the markets to the latest UK inflation levels, which showed core inflation fell to 6.9%, seems to have subsided somewhat. Not only did the result come out above the expected 6.8% figure, core inflation excludes volatile products such as food and energy. These of course are two of the key components currently under the spotlight both in the media and amongst policy makers. This is due to the rising costs of grain once again, as Russia has revoked its agreement to allow the safe passage of Ukrainian exports from the war-torn countries’ Southern ports. Add to this the ongoing debate amongst UK policy makers and energy firms regarding the rise of the pre-agreed energy caps, it is clear that there are many key sticking points that remain unresolved.

Whilst it is impossible to predict exactly how the markets will evolve in the short to medium-term, it may be prudent for those clients holding Sterling to give serious consideration as to whether the current levels on GBP/EUR are in fact an opportunity rather than a prefix to more lofty heights. 1.20 on the pair still looks an extremely ambitious target, when the current market conditions are weighed up and the current unpredictable external variables are considered.

Looking at cable rates and the Pound did manage to move away form the six weeks low it was trading at against the US Dollar at the beginning of last week. With the US Federal Reserve likely to scale back on their current rate hike strategy due to US inflation levels starting to come under control and the potential for further global market unrest due to the stagnation of the Ukrainian counter offensive against Russia, the USD may well find further support over the coming weeks, as investors return to the safe haven currency amidst the on-going global economic uncertainty.

Looking ahead and there is almost no key data of note for the UK, so investor’s focus will likely centre on Eurozone PMI data & Consumer Confidence figures on Wednesday, US employment data on Thursday followed by US FED Chairman Jerome Powell’s speech on Friday.