Sterling Rallies On

By Ashley Finill

This week sterling has continued to hold on to gains seen last week against the majors and continue to strengthen. Although negative inflation data from the UK was released last Wednesday, sterling received support as the likelihood an interest rate cut in the UK previously planned for March took at setback, with a cut now not expected until at least the third or fourth quarter of this year. Trading markets in the UK having been buoyant not just for sterling but also in the S&P 500 which reached a record high this week and although this may not be currency-related it does have a connection to sterling, in that a buoyant UK equity market the pound tends to thrive in this environment with investors supporting sterling and as such demand strengthening the currency. Also, the ONS reported yesterday the UK public borrowing in December undershot expectations by some margin. It was expected that public sector net borrowing would be around £14 Billion, actually coming in just under half that at £7.8 Billon. This latest figure from the ONS will be music to the ears of Chancellor Jeremy Hunt as this will give him more to play with when it comes to the spring Budget, as economic analysts now predict he will have extra headroom against his fiscal mandate with a budget of around £20 billion, up from the £12.9 billion at the November autumn statement. So, more good news for UK economy and as a result sterling is currently testing the top of a key range against the euro. So those of you with a requirement for euros may want to consider locking in to a rate, as we have seen a number of times in 2023 when sterling gets to the top of the key range it can only take a setback in UK economic data (or bullish data from both the EU and US zones) to plunge the currency back into the low end of the range – which is around 3-4 cents off where we are now and back to lows seen only 3 or 4 weeks ago.

Data Remaining Today & Rest of Week

As we push further into the week there still are a few important data releases to take note of which are likely to have an impact on current rates. Today being especially busy, as this morning, starting in the Eurozone at 9am, PMI data is to be released, a better figure is expected from last month’s reading of 48.8. Over to the UK at 9.30am as PMI data is also released, a slight contraction is expected from last month. Should the figure be not as expected for both EU and UK releases we could see some volatility early doors. In the afternoon at 2.45pm the Bank of Canada will announce their interest rate which is expected to remain at 5%. Stateside, at 2.45pm PMI data is to be released which is expected to show a contraction from last month’s reading of 51.4. Tomorrow, the European Central Bank announce their interest rate decision which is expected to remain at 4.5%, there’s no expectation of any surprise here but a press conference will be held by ECB president Christine Lagarde who will give more insight into their thoughts on their decision and any future rate cuts. Thursday afternoon there are a few data releases from the US as Jobless claims is released and GDP at 1.30pm. Friday is a quiet day on the data front with only GfK consumer confidence being released in the UK overnight.