By Lauren Buckner
Homer, the Greek philosopher termed the phrase ‘liquid gold’ when referring to olive oil in Ancient Greece – since adapted by the modern world to refer to petroleum oil, it has never been more relevant. The Pound was put under pressure yesterday afternoon following the part closure of Norway’s Sleipner gas field following the discovery of several gas leaks. Norway is the UKs largest source of natural gas and the closure of this gas field means that the UK’s major gas terminal at Easington has had its supply cut to around 25% of its potential, the result was that GBP was sold widely as gas contracts in the UK rose as much as 27% in price through yesterday.
As a safe-haven currency the USD continues to strengthen and the Pound lost further ground yesterday against this and most major currencies, however, remained well supported against the Euro. This is welcome respite to our euro buyers who should see this as an opportunity to purchase funds at a favourable price in relative terms to the Pound’s recent performance. Again gas and oil is the reason for current euro weakness; the EU are particularly exposed to Russian supply. With ‘maintenance’ work closing the Nord Stream pipeline there are growing concerns that the outage may last longer as war with Ukraine continues and Putin uses the supply as a political bargaining tool. In fact both the French and German economy ministers have warned that the EU should prepare for a total cut off of Russian gas and oil supplies. These fears have seen the euro fall close to parity against the USD as investor appetite for the greenback continues at pace in the current climate of uncertainty; slowing economic growth and continued high level of inflation could continue to fuel demand for the USD. The recent lockdown of Wugang in China in an attempt to contain the rise in covid cases following the emergence of the BA4 and BA5 variants will do little to abate these fears.
Sterling saw a small boost this morning as GDP for May was released above expectations at 0.5% – welcome relief after two months of contraction and positive signs in particular from the construction industry. Despite beating economists forecasts it is thought that this economic growth is likely to be temporary as the UK continues to struggle with slowly rising unemployment and surging inflation contributing to a cost of living crisis. As the candidates for the new Conservative Prime Minister were whittled down to just 8 runners overnight only one – our former Chancellor Rishi Sunak (a hot favourite) – is opposing tax cuts and further spending on household support, this could be a policy which benefits GBP as it promotes economic growth above anything else. By next Thursday only two candidates will remain in the UK leadership race before the opportunity to vote on Boris Johnson’s replacement is offered to the wider members of the Party. However, there are growing concerns that the two month lag in political leadership could dampen economic progress in the UK even further. This afternoons US inflationary data is the next release to monitor.