Sterling holds on for now

By Kian Songra

Sterling has continued to hold its strength and retest the top of the recent range and established a level of resistance that hasn’t been seen for the last 18 months.

Wages are rising less than expected in the UK and the unemployment levels have unexpectedly risen. On Tuesday, the unemployment rate in the UK slightly tipped up to 3.9% in January, when it had been forecasted by economists to remain held at 3.8%. This caused a slight loss in strength for sterling but nothing too significant over its counterpart, with the market adjusting accordingly back to the previous highs.

On Wednesday we saw the Gross Domestic Product (GDP) figure released, which is a metric that measures everything produced in the UK and it grew by 0.2% in January. This means that the recession that was declared in February could be the shortest ever or be revised out of existence.

This week a prominent European Central Bank (ECB) member Yannis Stournaras, alluded to the suggestion in an interview that “We need to start cutting rates soon so that our monetary policy does not become too restrictive”. Again, these comments may reiterate the fact that the ECB may have plans to cut their rates sooner than the Bank of England, which seems to be keeping the pound buoyant for the time being.

Sterling has weakened against the stubborn dollar, as the US Producer Price Index (PPI) release improves its safe haven appeal. PPI is a measure in the changes for the price of commodities sold for personal consumption, capital investment, government, and export. PPI rose by 0.6% month over month in February, marking the largest increase since August 2023, surpassing the market’s expected 0.3%. This caused the pound to weaken against the stronger dollar, suppressing the recent gains. Retail sales in the US were up 0.6% for February subsequently supporting the strength in the currency, following an upwardly revised 1.1% fall in January and below the forecasted 0.8%.

Today’s remaining data

Today the notable data release comes from The University of Michigan Consumer Sentiment report, which is a survey composed of results from 500 consumers measuring their views on the short and long-term prospects for the economy. There are two versions of this report, which are released two weeks apart from each other, with the preliminary report which is today’s release having a great impact as it is deemed to be more timely. Any reading that is stronger than the forecasts, is generally bullish for the dollar, while a weaker than forecasted reading is typically doveish for the dollar.

A close eye should be kept on the ECB Lanes speech and any comments strengthening ECB member Stournaras’ stance which could cause fluctuations in the rates as market participants react accordingly.

Insight into next week

Next week’s data releases are to be kept a close eye on as investors seek fresh guidance on the highly anticipated Bank of England interest rate decision on Thursday following Wednesday’s release of UK Inflation data.

It could be prudent to look at securing currency to avoid risk exposure through our various payment options that your dedicated currency consultant can discuss with you.