Sterling Rally Subsides

By Simon Eastman

Last week we saw the pound continue its bullish run in the early part of the week, making further gains across the board, including against the euro and US dollar.

By midweek, the pound was pushing fresh highs against both the major currencies pairs but failed to break the resistance ceilings of 1.19 against the euro and 1.28 against the greenback.

With the Federal Reserve holding US interest rates at their current level and not mentioning cuts in the pipeline, following some better-than-expected jobs data the previous Friday, the dollar made headway back against sterling and halted the pound’s run in the latter half of the week.

Sterling finished the week off strongly, but traders are cautious of the week ahead as the it’s a key one for the pound and its ongoing trend. As noted in the Week Ahead below, we have UK inflation reading on Wednesday, which is forecast to drop nearly half a percent from last month and then the next day, the Bank of England meet to decide on our interest rates. Rates are expected to be kept on hold at 5.25 percent but if inflation drops more than the forecast on Wednesday, we could see speculation as to whether the Bank might in fact cut rates, as one has been speculated over for a couple of months now. Lower inflation could leave that door for a June cut wide open, so anyone with sterling inn hand be aware of the repercussions for the pound if the Bank do cut rate, this will almost certainly be detrimental to the exchange rates.

Even if rates don’t get cut, it will be all eyes on the subsequent press conference for any comments which might give a clue as to if or when the Bank might be looking to cut interest rates. It may be prudent to look at purchasing your currency ahead of the inflation reading on Wednesday either on a spot contract, if all funds are available, or a forward contract should you not have all the funds yet, or just not need the currency for a while but want to take advantage whilst the going is good.

The Week Ahead

Monday – German Buba monthly report

Tuesday – RBA AUD interest rate decision, German ZEW sentiment survey, EU consumer prices inflation reading, US retail sales and industrial production.

Wednesday – UK inflation retail and consumer process, EU ECB non-monetary meeting, NZD GDP reading.

Thursday – CHF interest rate decision, UK Bank of England interest rate decision and policy statement release, US jobless claims and EU consumer confidence reading.

Friday – UK retail sales, German composite, services and manufacturing PMI, UK S&P composite, services and manufacturing PMI, US S&P composite, services and manufacturing PMI and Canadian retail sales.

Plenty of high importance data releases this week, revolving around the core elements which affect the currency markets, being inflation and interest rates. To discuss how these may affect your upcoming purchase and look at the options available to mitigate the risks, speak to one of the A Place in the Sun Currency team today for some friendly guidance on your upcoming currency requirement.