By Simon Eastman
Yesterday we saw the Pound edge higher as the UK unemployment figure came out unchanged, whilst average earnings saw an increase above expectations. Unfortunately for those with sterling in hand, the gains didn’t last long as growth and inflation concerns came back to the fore.
With wages increasing, it’s argued that people have more disposable income and therefore can spend more, giving a boost to the economy. But with the increase in utility costs like gas, electric and water plus the ongoing cost of living crisis as things like the wars in Ukraine and the Middle East rumble on, impacting supply chains, will there actually be any increase in normal spending on goods and services which are non-essential and therefore, will the UK benefit from it?
This was the view reiterated by Bank of England Governor Andrew Bailey at an event in Brussels on Tuesday where he stated we are facing “a weak growth environment” in the UK, adding we are entering a period of “heightened uncertainty”. He also cited better Q4 GDP was not to be mistaken for an overall improvement and had not changed the “bigger picture” outlook for the UK’s economy.
Yesterday saw GBPEUR rally to some of the best levels in weeks, despite dropping back over the morning’s trade, as the US markets opened the euro lost ground to the US dollar and the pound benefitted once again, reaching a multi-week peak as the day wound up.
For anyone looking to buy euros, hoping we might get back to the multi-year highs we saw pre-Christmas, it might be worth taking advantage now whilst the going is good. Considering we are not far off that peak, chasing that inch, only to lose a mile is something we have seen many times over the last 6 months, with rates moving within a range of nearly 6 cents over that time.
Tuesday saw GBPUSD make some small early gains, followed by a retraction over the rest of the day ending up flat at a key resistance point, having bounced within a very slim range all day. USDEUR made the most gains over the day with a half cent increase for those with dollars buying in the Eurozone.
With investors seeking safer havens for their funds whilst the Israeli/Palestinian peace talks and releasing of hostages continue cautiously, it’s unlikely we will see rates for buying dollars increase much at all in the coming weeks, with downside risk much more likely. With that in mind, anyone with dollars to buy might be prudent to think about securing them sooner rather than later, as if the already fragile talks go south, investors are likely to increase their risk averse stance, and the dollar could rally back again to the rates seen only a few weeks ago which were 4-5 cent lower than current levels.
With the recent interest rate cut we saw at the start of the month, traders were looking towards the inflation reading this morning for further insight as to what the Bank might do next.
Inflation came out this morning higher than expected, jumping from 2.5 percent to 3 percent in a surprise rise. The initial effect was a positive one, as higher inflation leaves less wiggle room for the BoE to cut interest rates again in the short term, although the gains for the pound were seemingly short lived as inflationary pressures had been commented on by the Bank with regards to higher fuel costs and other factors mentioned earlier, and yesterday, by Bank Governor Andrew Bailey who mentioned inflationary pressures would be “persistent” and that they still see “gradual disinflation going on”.
Today as mentioned, we have already had UK inflation readings and as I write the European Central Bank begin their non-monetary policy meeting. After lunch we switch Stateside with a round of housing data ahead of the eagerly anticipated release of the FOMC minutes from the latest Federal Reserve’s interest rate setting meeting and speech by Fed member Jefferson.
Tomorrow, we have German inflation readings early doors followed by the EU consumer confidence index at 15.00, alongside US manufacturing and jobs data. The day rounds up with a speech at 16.00 from the Bundesbank president Nagel followed by one from Fed members Musalem at 17.00 and Barr at 19.30. Friday ends the week with UK retail sales and PMI figures for Germany, the EU, UK and US plus a handful of central banker speeches.
Plenty to go on to upset the apple cart over the next few days so make sure to get int ouch with one of the team at your earliest convenience to discuss your upcoming requirement and get some friendly guidance on making your money go further.