By Ashley Finill
We are a week on from the news of a recession in the UK and although this is negative news for the UK economy, Sterling is still holding strong against the Euro. Although the highs for GBP/EUR at the start of February have been lost due to the inflation rate remaining at 4% coupled with the recession news, the pound is still seemingly in a comfortable position and trading near the top of the range at present, which still provides a decent buying opportunity with those of you with a requirements for Euros (the pound is still trading at around a cent and a half better than it was around the start of January). However, these highs for the pound may be short lived as yesterday governor of the Bank of England spoke at a treasury select committee, and said that the BoE’s plan may change as they had aimed for cutting interest rates when inflation had dipped below 2%. However, yesterday Mr Bailey said that the bank is now discussing the option of cutting interest rates before the 2% target is reached. Sterling has benefitted from higher interest rates and as the ECB and Fed were expected to cut interest rates before the BoE, this was a contributing factor for why the pound was going strong against both the majors as of late. With this potential u-turn from the BoE, this raises alarm bells amongst investors of the pound, and should more talk of early interest rate cuts rise, we could start to see the pound fall with the event of a cut start to be priced into the market – buyers beware.
Conservatives under more pressure from Labour
Today we have prime minister’s questions in the house of commons, which have little to no effect on the currency markets generally, but Labour will almost be certainly pumping their chests out due to their big by-election win last week and after news that the country has gone into a recession, with economic growth the Conservatives’ primary objective on their mandate. As mentioned, last week Labour won two strongholds from the Conservatives and have done so on several occasions over the past couple of years, with the feeling that change is on the horizon at Westminster. 2024 is big year for politics as a general election is looming with an announcement expected from the prime minister in the coming months. As we have seen over the years uncertainty is Sterling’s foe so this could be a rocky year ahead for the pound so staying in close contact with your currency consultant during uncertainty can help you get the most for your money.
Data Today and Rest of the Week
Today is a quiet day for data releases but we the FOMC minutes will be released which should give more insight on the Fed’s future plan on interest rate cuts. BoE member Swati Dhingra gives a speech, he may also give more insight on the BoE’s plans for interest rate hikes, especially after Andrew Bailey’s comments yesterday. Tomorrow, we see a busy day as PMI data is released across the board, 9am in the Eurozone, 9.30am in the UK & 2.45pm in the US. On to Thursday afternoon at 1.30pm, retail sales are to be released in Canada which is expected to come in better than the -0.2% last month to around 0.8%. Over to the US, at 1.30pm jobless claims will be announced. Onto Friday and again a very quiet day, the only release of note is Gfk consumer confidence in the UK overnight.