By Simon Eastman
As July got into the swing of it, we saw sterling continue to make headway across the board, with both the euro and the greenback losing ground.
With a week of little data for the UK it was left to market sentiment and data from elsewhere to shape the markets, with the euro struggling under the weight of the French hung parliament and the dollar crumbling as people continue to ask questions as to whether President Biden is up to the job.
GBP/EUR ended the week at a 2-year high as the pound benefitted from fresh speculation surrounding our interest rates and if the Bank of England would be raising them come August. The GDP figure on Thursday, showing a better than forecast growth figure, gives credence to those who say the economy is on track and the Bank have no need to cut rates. GBP/USD also ended up in the pound’s favour, hitting levels not seen since last summer and getting very close to a strong ceiling of resistance to the upside at 1.30, helped by underperforming US inflation and a series of blunders by President Biden, including calling the Ukrainian President Zelensky, Mr Putin.
For our regular readers, they will have seen us talk about the effect of interest rates and the direct impact on currency rates. If an interest rate goes up, the better it is for investment, so the laws of supply and demand come into play and the more investors want it, the more expensive, or stronger, it gets. Likewise, if interest rates are cut, the opposite effect happens as investors sell of their holding in favour of something with more return.
With a strong growth reading, markets await the inflation reading on Wednesday this week to speculate further as to what the Bank might do in August when they next meet to discuss and decide on what action, if any, they might take with interest rates. The pound rallied over the Thursday and Friday last week as traders priced out the chances of a rate cut, given the positive data which saw sterling finish the week on top.
Weekend News
This weekend was a big one for sport with both the Wimbledon Finals and the Euro 24 Final. The Italian lost the ladies tennis whilst Spain won the men’s and we all know how the Euros ended in Berlin, with the Three Lions not quite managing to “bring it home” as the Spanish took the trophy with a 2-1 win.
Less shooting at the goal and more shooting at Trump over in the US, as a failed assassination attempt happened at a Trump rally. The presidential hopeful was a whisker away from being shot as the bullet seemed to catch his ear, as Trump emerged from the melee of secret service agents with a fist pump and a bloody ear, after they piled on Trump to protect him.
With the whos and whys still to come as the investigation starts in earnest, we will see how the markets are affected as the week unfolds no doubt.
The Week Ahead
It’s a very busy week ahead for data, from all over the globe to affect the markets, with the key highlights being UK inflation and the European Central Banks interest rate policy meeting. Alongside these, there is a flurry of other key releases noted below:
Monday – EU industrial production and Eurogroup meeting. US manufacturing index and Fed member Daly speech.
Tuesday – Eurogroup meeting, ECB lending survey, trade balance and ZEW economic sentiment survey. Canadian inflation. US retail sales and import/export prices. New Zealand inflation.
Wednesday – UK inflation. EU inflation. US housing data and building starts. Fed Beige book release.
Thursday – Australian unemployment data and business confidence survey. UK unemployment rate, earnings data and GfK consumer confidence survey. ECB interest rate, monetary policy statement and press conference.
Friday – UK public sector net borrowing and retail sales. German inflation. Canadian retail sales. US Fed member speeches by Williams and Bostic.
With so much going on now, the foreign exchange markets could be very volatile for those with sterling in hand, very much depending on what happens with inflation but also the rest of the key UK releases which will give a clearer indication as to what the Bank of England might do early August. For those selling sterling, buying whatever currency it may be, the recent good performance of the pound may be subject to correction depending on the data, so locking in your exchange rate for the coming months may be a prudent move. Speak to one of the team today about forward contracts and some friendly guidance on your upcoming currency requirement.