By Kian Songra
Last week was a challenging one for the UK Chancellor Rachel Reeves. Government borrowing costs have reached their highest levels in 16 years, and the Pound dropped to a 14-month low against the Dollar.
The Pound Lost ground against most of its major trading peers as persistent worries about escalating UK borrowing costs continued to weigh on the currency’s sentiment. The yield on the 10-year UK government bond climbed to its highest point since 2008, fuelling concerns about the nation’s financial stability. This dynamic, of yields moving higher, as the respective currency falls, is a classic sign of market participants losing confidence in the Government.
Despite this, Reeves has proceeded with a scheduled trip to China, drawing criticism from opposition parties for leaving during a time of economic uncertainty. Bank of England Governor Andrew Bailey is also part of the delegation. The 12-hour flight to Beijing, may well be as long as the meeting she might have preferred to have with him.
The Dollar continued to steam ahead following Friday’s release of above consensus US Non-Farm Payroll job numbers that eradicate the odds of a Federal Reserve interest rate cut in the first half of 2025. It was reported the US created 256K jobs in December, up from 212K in November and breezing past an estimate for 160K. This is seen as positive for the Dollar, as speculation of a cut in interest rates will be seen as less desirable to those investing. The Fed plans to hold back on cuts, partly due to Trump’s reported tariffs that will look to cause inflationary pressures. Reports suggest markets are only pricing in one interest rate cut for 2025, which could further support the safe haven currency into this year.
Following a week heavily influenced by US economic events, focus now shifts to UK macroeconomic data amidst a relatively calm start to what promises to be a busy week.
This morning’s announcement of the UK government’s plans to introduce Artificial Intelligence, has been introduced to help boost growth and deliver public services. This early announcement could be part of Keir Starmer’s ideas to restore faith of his plans after a shaky start to the new year.
The initial part of the week lacks major UK data releases, but the US Producer Price Index (PPI) data on Tuesday is expected to draw attention.
On Wednesday, the spotlight will be on the high impact Consumer Price Index (CPI) inflation reports from both the UK and the US, which are likely to shape market sentiment.
Thursday will see the release of the UK’s monthly Gross Domestic Product (GDP) report and Industrial Production figures, followed by the US Retail Sales and Jobless Claims data.
Friday brings the UK Retail sales figure and mid-tier housing data for the US to end the week. A rise in the retail sales figure is generally seen a positive for the Pound, as it demonstrates the amount of consumer spending in the economy.
Beyond these scheduled data releases, speeches from Federal Reserve officials, policy speculations surrounding Donald Trump, and evolving geopolitical developments are expected to act as additional market drivers. Any additional negative news or statements from the UK government could further undermine confidence in the Pound.
With those expecting the Pound to re-test the previous peaks and hold on for what could be a marginal gain, the risk of the downside and the Pound worsening off could have a bigger impact on your upcoming currency requirements. For those with Euros in hand and looking to sell, this blow to the Pound could be an opportunity to act, before the UK government looks to try and restore faith in investors.
With the growing uncertainty in the currency markets, the price of your property is fluctuating by the second, until you secure your currency. So, for many, certainties in an uncertain environment may help remove the stress. Stay in close contact with your currency consultant at A Place in the Sun Currency to assess your options, and for some friendly guidance.