By Ashley Finill
Sterling has gained ground against the Euro this week and is now trading at its best levels since July last year. The Euro has come under pressure over the past couple of days, following softer-than-expected economic data releases from Germany, the single currency’s largest economy. Markets will also be looking ahead to Thursday’s ECB interest rate decision. A 0.25% interest rate hike is widely expected to combat increasing EU inflation, and this is likely to strengthen the Euro, which would see this recent increase in the GBPEUR rate likely reversed in short order.
At the same time, expectations that the Bank of England may take a slower approach to the planned cutting of interest rates have helped support the Pound. Once the ECB has announced its interest rate decision, the focus will then shift to its guidance for the months ahead. Any suggestion that further hikes are likely, could see the Euro strengthen even further, so we can expect volatility following the announcement. Attention will then turn to the Bank of England next week as policymakers announce their latest interest rate decision. A hold is widely expected, but should there be an unexpected rate cut, Sterling could come under pressure and see some of these recent gains against the Euro diminish.
Middle East Tensions Escalate, Keeping Markets on Edge
Overnight, tensions in the Middle East have risen once again. Earlier this week, US President Donald Trump spoke to the media and said that a deal with Iran was only days away and could potentially lead to the reopening of the Strait of Hormuz. However, on Monday night, a US military helicopter went down off the coast of Oman whilst patrolling near the Strait of Hormuz. This then prompted a response from the US, with strikes carried out against targets in Iran yesterday. Iran has since vowed retaliation, and reports indicate attacks against US military assets in the region. This highlights the fragile nature of the situation and will continue to impact global markets. The oil market has already reacted to recent events, with prices moving higher this week. The knock-on effect is likely to be felt at the petrol pumps in the UK and could add further inflationary pressures to the economy. As a result, this may complicate the Bank of England’s decision making process regarding future interest rate cuts, something Sterling could do without. At the time of writing, the Pound is still trading at an attractive level and near the top of the range seen over the past 12 months. If you have a currency requirement, it would be prudent to get in contact with your currency consultant to discuss your options. With the Bank of England’s meeting only eight days away, and next week’s Makerfield by-election also taking place, either event could throw a spanner in the works and see the Pound’s recent gains reversed. Therefore, it may be worth giving us a call ahead of these announcements to ensure your money goes further with A Place in the Sun Currency.
Remaining Data Releases
There are a few key data releases that could impact the Pound’s recent gains. Today sees the release of US Consumer Price Index data at 1.30pm, which will be closely watched by markets, as any upside surprise could see the Dollar strengthen against Sterling. Later today, at 2.45pm, the Bank of Canada will announce its latest interest rate decision. The focus then turns to Thursday’s ECB interest rate decision at 1.15 pm. As mentioned, a 0.25% rate hike is widely anticipated. Markets will be paying close attention to ECB President Lagarde’s press conference and forward guidance, as any indication that further rate hikes are likely could see the Euro bolstered further. Volatility around this announcement could be significant and may present both risks and opportunities for those looking to move money. On Friday morning at 7am, we will see the release of UK economic data, including GDP and manufacturing figures for April. Should these releases disappoint, it could undermine Sterling’s recent gains and raise questions over the Bank of England’s ability to keep rates on hold at next week’s meeting. With so much at stake over the coming days, it may be a good idea to speak with your currency consultant ahead of these major announcements to ensure you don’t get caught out by the unpredictable currency market.