By James Caley
Last week, sterling experienced a roller-coaster ride against all major currencies following comments from Bank of England Governor Andrew Bailey. In an interview with The Guardian, he signalled that the UK could see more aggressive interest rate cuts, which triggered an immediate sell-off of sterling.
By Thursday, GBP/EUR had fallen by almost 1.5 cents by midday following the interview. Sterling also dropped 1.5 cents against the US dollar, nearly 2 cents against the Australian dollar, and 2 cents against the Canadian dollar. Additionally, it lost 5 cents against the UAE dirham.
Towards the end of the week, sterling managed to claw back some of its losses against the euro, settling around half a cent lower than the highs seen just two days earlier. It almost fully recovered against the Australian dollar and regained about half of its losses against the Canadian dollar.
However, the story was slightly different for GBP/USD. The ongoing conflict in the Middle East has driven fearful investors back to the US dollar, strengthening the greenback. This was compounded by a surprising non-farm payrolls report, which showed a result of 254,000 jobs added, far above the forecasted 130,000. These factors pushed GBP/USD back to the lower levels last seen three weeks ago.
This recent market activity is good news for our clients repatriating funds to the UK, as they will benefit from higher returns on their transfers. However, the outlook is less favourable for our clients looking to purchase property abroad. While the market has already priced in a UK interest rate cut for November, the official announcement is likely to drive sterling further down. Additionally, we are anticipating a rather grim autumn budget, which could further dent confidence in the UK economy.
In light of these developments, we’ve seen an increase in clients opting to mitigate their risk through forward contracts. This allows them to lock in the current high exchange rates for a future date, whether for staged payments or completion. To learn more about how this type of contract can benefit you and help reduce the risk of further losses, please click here or get in touch with your currency consultant.
This week brings several important data releases that could affect all of the above currencies:
Monday: European retail sales data, along with several speeches from the US Federal Reserve, the tone of which could further strengthen or weaken the US dollar.
Tuesday: Minutes from the Reserve Bank of Australia’s (RBA) latest meeting.
Wednesday: New Zealand interest rate decision and US Federal Open Market Committee (FOMC) minutes.
Thursday: US Consumer Price Index and inflation data.
Friday: Eurozone Harmonised Index of Consumer Prices, Canadian unemployment rate, and US Producer Price Index.