By James Caley
Sterling has had a relatively positive week, helped by UK inflation rising from 2.6% to 2.9%. Although unemployment remained elevated at 4.9%, the higher inflation figure reinforces expectations that the Bank of England will remain cautious about cutting interest rates. This has provided some support for the Pound, although GBPEUR has remained relatively contained.
The bigger move has been against the US Dollar, which has weakened considerably this week. GBPUSD has pushed higher, while EURUSD has also gained strongly. Concerns over the US economy and changing expectations around US interest rates have weighed on the Dollar, with markets increasingly sensitive to any indication that the Federal Reserve could adopt a less restrictive approach over the coming months.
UK retail sales came in as expected this morning, falling 0.5%, and we await the latest manufacturing and services PMI figures, which will provide a more up-to-date indication of how the economy is performing. Stronger figures could give Sterling further support, while disappointing numbers could quickly put the Pound under pressure.
German manufacturing figures are also released today and will be important for the Euro. With relatively little major US economic data to finish the week, GBPEUR is likely to be driven primarily by the UK and German releases, while GBPUSD and EURUSD could remain particularly sensitive to wider market sentiment and any further change in US interest rate expectations.
With Sterling holding firm against the Euro and trading at stronger levels against the US Dollar, current rates may present a good opportunity for anyone with upcoming currency requirements. Markets remain sensitive to economic data and interest rate expectations, so those with payments to make may want to consider taking advantage of current levels rather than leaving themselves exposed.