By Ashley Finill
This week Sterling has been handed some good fortune at the expense of the UK economy as higher inflation figures were announced on Wednesday, which now would almost certainly rule out the Bank of England cutting interest rates in December as expected. Last month, Labour set out their first fiscal policies since they came into government earlier this year and introduced high tax rises and the outlook from the Bank of England at their meeting earlier this month was that inflation may now reverse with inflation to rise in the UK in 2025. The BoE have now suggested that they are going to take a more cautious approach on cutting interest rates, it had been reported that there were to be consecutive cuts in both November and December but with the budget tax rises and latest inflation reading this is highly unlikely to be the case. As a result, Sterling has gained nearly a cent on the Euro over the past week, with the Pound reaching two-and-a-half year highs earlier this month.
Safe Haven Dollar Continues to Surge
The US Dollar continued to surge on the majors over the past week. The US Dollar has climbed just over a cent on both the Euro and Sterling. This is due to the conflicts going on in both Israel and Ukraine as problems in both regions have seen escalation in recent weeks, especially that in Ukraine as this week outgoing president Joe Biden gave the green light for Ukraine to fire US missiles into Russia, which in turn saw Russia’s President Vladimir Putin sign an updated nuclear doctrine setting out new conditions under which the country would consider using its arsenal. As tension rise, investors sway away from other currencies and place their money into the US Dollar which is seen as a safe haven when crisis is present. Also driving the US Dollar is the newly elected and once former President Donald Trump. Trump’s forthcoming policies are starting to attract potential investment, although Trump may not be everyone’s cup of tea, his last term in office saw a bullish US economy, in his run up to the election he focused heavily on the rebuilding US economy and as he has a previous record in doing so, the markets are betting on him doing the same again.
Data today
As we come into the last working day of the week the pound starts the day on the back foot as the UK posted negative retail sales figures for the month of October. Although a contraction was expected of -0.3% from September’s figure of 0.1% the figure for October has been recorded at -0.7% meaning people were spending less in the shops throughout the UK. As of writing since the announcement Sterling has dropped over just under half a cent on both the Euro and US dollar. At 9am, the EU post PMI data, this is also likely to affect the currency market early doors. In the afternoon, Canada also releases retail sales figures at 1.30pm and moving south the US post PMI data at 2.45pm, again another data release that could cause some volatility in this afternoon’s trading. As always stay in close contact with your currency consultant to stay ahead of the curve and for professional, friendly guidance.