By Ashley Finill
This week Sterling has come under pressure against both the Euro and US Dollar, with the Pound giving back some of the gains it had made earlier this month. The main reason for the downturn was Wednesday’s UK inflation figures, which came in at 2.8%, down from the 3% that had been expected. Whilst lower inflation is generally seen as a positive, this now paves the way for the Bank of England to start cutting interest rates again later this year. As a result of the inflation reading, Sterling started to wobble across Wednesday’s trading.
Attention then turned to yesterday’s Bank of England interest rate decision. As expected, rates were left unchanged at 3.75%, however the Bank struck a fairly cautious tone regarding the outlook for the UK economy. Whilst there was nothing particularly alarming from the announcement, it did little to provide Sterling with any support following the inflation release earlier in the week.
This week, the Pound has also found itself up against a stronger US Dollar following the Federal Reserve meeting on Wednesday. The Fed signalled that they are in no rush to begin cutting interest rates aggressively. This has helped support demand for the Dollar and has added further downside pressure on GBPUSD.
Political Uncertainty Could Add Further Pressure on Sterling
UK politics has taken centre stage this morning after Andy Burnham secured a convincing victory in the Makerfield by-election, paving the way for what now looks set to be a direct challenge to Keir Starmer’s leadership. Burnham has long been viewed as a popular figure within Labour, and his return to Westminster is likely to increase speculation around the Prime Minister’s future. Whilst political uncertainty doesn’t always have an immediate impact on the currency markets, it is rarely welcomed by investors. With questions now being asked over who could be leading the country in the months ahead, we could see further pressure on Sterling if uncertainty continues to build.
Data Today
Only one data release to take note of today, which has already taken place this morning as retail sales in the UK were posted at 7am. The figure came in at 1.2% up from last months figure of -1% and way above the 0.5% expectation. Although there was a spike for the Pound this morning, those gains have been short lived and we’re back to the levels seen yesterday. This is likely because of the by-election win yesterday for Burnham, who is now likely to contest the PM’s Position. As always stay in contact with your currency consultant here at A Place in the Sun Currency to make sure your money goes further.