Sterling recovers in interest rate race

By Tom Arnold

Last week we saw some of the recent losses for the Pound reversed with GBP-EUR particularly close to the recent highs we have seen once again. This was largely a result of a correction following the excitement of recent inflation releases and the subsequent view of upcoming central bank interest rate action. Expectations of US interest rate cuts had been high, with inflation seemingly back under control, but recent jumps in inflation caused a push back on this, which subsequently caused a surge in Dollar strength. UK inflation on the other hand has continued to come down, which has increased the expectation of UK interest rate cuts, which drove the Pound lower.

The Pound was able to claw back some of the multi-cent losses it had suffered, presumably because it is anticipated that interest rate cuts are still some months away. However, it is interesting to note that the recovery has not taken us back to the levels we had been at, and so clearly there is some fear within the market that the next Bank of England meeting could bring the much feared/hoped for (depending on whether you have a mortgage or a currency requirement!) interest rate cut.

The recovery we have seen is likely a good opportunity to consider your situation if you have an upcoming requirement to make an international payment. Securing your currency on a forward contract would eliminate any risk from market volatility, and with rates for GBPEUR close to recent highs, you would be securing a rate near the top of the market and removing the chance of any drops if the Bank of England do act.

Economic Data Out This Week

The week ahead is very US focused, in terms of the data we have due, with the Fed due to make their interest rate policy announcement on Wednesday and Non-Farm Payrolls due on Friday too. Remember that US Dollar movement directly impacts Euro strength, so stay in close contact with your account manager whether you have a Dollar requirement or a Euro requirement.


EU Consumer Confidence

German CPI Inflation


Australian Retail Sales

German Retail Sales

EU HICP Inflation


New Zealand Unemployment Rate


US Employment Change

US Manufacturing PMI

US FED Interest Rate Decision + Policy Statement


US Initial Jobless Claims


US Non-Farm Payrolls

US Services PMI