Sterling Rally Takes A Knock

By Simon Eastman

During Thursday we saw the pound falter in its recent show of strength as we saw this week’s rally tail off.

The pound started the day on the front foot again as we had Nationwide house price data released early on, showing a further improvement with year-on-year figures improving to minus 1 percent, from last months reading of minus 3.1 percent.  This is despite the rise of borrowing costs over recent months with most fixed rate mortgage rates well into the 6 percent region, some 5 percent higher than a couple of years ago.

GBP/EUR was helped by the German industrial production reading missing expectations, forecasted to come out as a positive reading of 0.2 percent, but falling only reaching minus 0.4 percent from last months minus 1.3 percent. European employment figures also missed the boat, expecting to recover to 0.3 percent from last months 0.1 percent, but only posting 0.2 percent increase in new jobs taken. The more important GDP reading for the EU also missed its mark, with a no- change reading expected at 0.1 percent, but we saw growth stagnate at a flat zero percent for the year and minus 0.1 percent for the last quarter, unchanged from the previous reading.

The afternoon was a different story as a raft of low-key US data releases posted insight into the US jobs market ahead of todays all important non-farm payrolls. The fact that we saw an increase in the number of initial applications of people claiming for job seekers shows a slowdown in the US jobs market and subsequently cooled the US dollars recent form. We saw 2000 extra initial claims but a drop in the number continuing to claim help, so the non-farm payrolls, a measure of all the new jobs created in the past month excluding agriculture will be key to the upcoming performance of the USD and EUR.

The data cooled the dollar, seeing cable trade flat over most of the day, but gave the euro a boost, gaining half a cent against the US dollar and clawing back half a cent from the pounds weekly gain, ending the day lower than the pair had started.

Today we end the week with German harmonized consumer prices index and the UK’s consumer inflation expectation report ahead of the key US jobs data including the non-farm payrolls, average earnings, and unemployment rate. Should these miss the grade today, we could well see further losses on GBPEUR with the potential to see the gains buyers have enjoyed this week further wiped out. With that in mind, anyone with sterling in hand, particularly looking to buy the single currency, might be worthwhile securing something this morning before the lunchtime rush of data and subsequent market activity. Contact the team today for the usual friendly guidance on any upcoming currency requirement.