By Kian Songra
This week rounds off a mixed bag for the Pound. The Trump trade rumbles on; for the Pound Sterling, this means a firmer GBP/EUR but a lower GBP/USD.
This week, the Pound fell to new multi-week lows against the Dollar while holding firm against the Euro. This market movement reflects the ongoing financial adjustments following Donald Trump’s recent election victory, bolstered further by the Republican Party securing control of both houses of Congress.
The UK is a major exporter of services to the US, which don’t fall under Trump’s tariff regimes. A stronger US economy, driven by Trump’s tax cuts and deregulation, could support UK economic growth. Meanwhile, these developments may have a downside for the Euro, as the Eurozone’s manufactured exports to the US could face challenges.
The British Pound is likely to find continued support from central bank policy, as the Bank of England is expected to maintain a gradual approach to lowering interest rates, citing potential inflationary pressures in 2025. Following last month’s budget announcement by Chancellor Rachel Reeves, which included a substantial increase in government spending, both the Bank of England and the Office for Budget Responsibility raised their UK inflation forecasts.
This environment may help support the Pound against currencies from regions with faster rate cuts, such as its European counterparts, though it may face challenges against currencies with similarly appealing interest rates, like the US Dollar.
Yesterday Fed Chair Jerome Powell appeared in a panel discussion, titled “Global Perspectives” at an event hosted by the Federal Reserve Bank of Dallas. He stated, ‘The economy is not sending any signals that we need to be in a hurry to lower rates,” during the speech. This was welcome news for investors and so today’s trading session could see the dollar hold its strength on its major peers.
Down under, the Australian Dollar has lost value to all its G10 peers over the course of the past week amidst expectations that Trump means tougher times for China and global trade, to which Australia is sensitive. Australia’s disappointing jobs data on Thursday, won’t have helped AUD sentiment at a time of broadening global pressures.
This morning, the UK’s monthly GDP declined by 0.1% in September, falling short of expectations for a 0.2% rise and down from a 0.2% increase in August. Additional data revealed that Industrial Production and Manufacturing Production both dropped in September by 0.5% and 1.0%, respectively, with both figures coming in below estimates.
Later today the only notable data release is across the pond, where the US retail sales figure is released. Retail Sales data is widely followed as an indicator of consumer spending, which is a major driver of the US economy. Generally, a high reading is seen as bullish for the Dollar while a low reading is seen as bearish. A flurry of ECB policymakers will speak this afternoon, and investors will look closely into signals regarding their future outlook.
If you have any up and coming currency purchases, get in touch with A Place in the Sun Currency to discuss a strategy to take advantage of the current rates, or at least limit your risk to the market.