By James Caley
Sterling has had a mixed few days, holding up relatively well against the Euro, but continuing to lose ground against the US Dollar. The Pound has found some support against the Euro, as markets appear relatively comfortable with the UK’s political transition, following Keir Starmer’s resignation.
The prospect of a swift appointment of a replacement Prime Minister and Chancellor has helped reduce uncertainty. Markets generally prefer stability and continuity, and the absence of a lengthy leadership contest has so far limited any negative reaction from investors. Attention will now turn to whether there are any meaningful changes to economic policy or spending plans in the weeks ahead.
GBP/EUR is also being influenced by economic data from both sides of the Channel. German business confidence and consumer confidence remain weak, which has limited support for the Euro. Attention now turns to Germany’s latest IFO Business Climate and GfK Consumer Confidence figures, which will provide further insight into the health of Europe’s largest economy. For anyone needing to buy Euros, current levels remain attractive by the standards of recent months and it may be worth considering securing at least part of any upcoming requirement, while the market remains favourable.
GBP/USD has continued to fall as the US Dollar has regained strength. Markets remain focused on the prospect of US interest rates staying higher for longer, which has increased demand for the Dollar. At the same time, recent UK data has done little to support Sterling, helping GBP/USD move lower.
Attention now turns to Thursday’s US data releases, including Core PCE inflation, GDP, durable goods orders, personal income and personal spending. Core PCE is the Federal Reserve’s preferred measure of inflation and will be watched particularly closely. Stronger than expected inflation could reinforce expectations that US interest rates will remain elevated for longer, which may provide further support for the Dollar. For USD buyers, the recent move serves as a reminder of how quickly market sentiment can change. For USD sellers, the current market may provide an attractive opportunity to secure favourable rates, while they remain available.