By Lauren Buckner
The Pound has been enjoying some strength following Jeremy Hunt’s budget statement and moved to a six week high versus the euro yesterday afternoon.
We saw the euro weaken on the back on lower than expected inflation figures yesterday at 2.4pc – the lowest figure since July 2021. Coupled with a stagnant economy and recent disappointing figures from Germany there are renewed calls for a rather swift cut to interest rates in the EU.
Currency markets remain focused on central bank policy and for the UK (and therefore the Pound) have seen a rather swift move away from suggestions of an interest cut in the first half of 2024 to affirmations that the current high levels of interest in the UK will be here to stay. Jeremy Hunt pointed towards his support of this policy as beneficial to the UK economy while we continue to battle higher than ideal levels of inflation, and several members of the Bank of England Policy committee have since reiterated this stance, with some suggestion that we may yet see another hike over the next few months. This has enabled Sterling to capitalise this week, as mentioned seeing some much more favourable levels for our euro buyers and also a nine week high for those clients buying US Dollars. The December 14th Bank of England meeting will be much anticipated for those wanting further clarity on the Bank’s outlook for interest rates.
The US Dollar has been impacted by a renewed risk appetite which sees traders sell their safer positions (USD is a traditional safe haven) and weaker than expected Treasury Yields which reflect an expectation for a rate cut from the Federal Reserve as early as March! With the Pound finally leading the ‘pack’ this buying opportunity should not be overlooked, economic indicators are beginning to hint that the UK economy may be slowing which would lead us towards a contraction in GDP early next year. Conversely, with the focus very much on interest rates those needing to purchase the Pound should also tread cautiously given how quickly Sterling has strengthened this week. The only clear thing at the moment is that as we draw towards the end of 2023, the potential for increased volatility in 2024 is highly likely – the recent rangebound market is not the norm in currency markets and clients should be clear on the risks of waiting to trade any required funds!