By Simon Eastman
Trading over the last 48-hours has been a volatile one for those with sterling in hand, but seen some excellent opportunities for those looking to buy sterling as the pound dropped across the board.
The pound came under selling pressure as government bond yields increased dramatically in the last 6 months, with 10-year gilts at levels not seen in nearly 20 years and the 30-year bond now at its highest interest rate since 1998. With borrowing costs going up and the amount of borrowing from the government increasing, there are concerns surrounding the poor state of UK plc’s finances.
Borrowing costs have been rising all over the world recently so its not just the UK that is feeling the pressure and with a huge amount of uncertainty surrounding the return of President (elect) Donald Trump, investors are jittery to say the least. This has manifested in the usual way, with a sell-off of riskier currencies (like the pound) and an influx into safe haven, low risk currencies like the US Dollar and the Yen.
GBP/USD dropped to a 14-month low earlier on Thursday, having seen a significant dip in the last 48-hours. We saw a slight recovery in the afternoon but fell short as resistance ceilings were hit, although with US markets closed yesterday to mourn the passing of ex-president Jimmy Carter, once they are open again today, the pound could be in for another pummelling. We have the FOMC minutes from Wednesday evening that will be digested by US markets plus the all-important nonfarm payrolls and average earnings data released after lunch.
Thursday was heavy on low key data, with just the EU retail sales of note which came out as expected. The raft of German data was all as forecast, which is likely the reason GBPEUR managed to plug the hole in the ship, before the pound sunk, as we saw a half cent rebound over the afternoons trade.
We end the week quietly with no UK or EU data releases of note and hope that the UK gilts market simmers down ahead of the weekend. From lunchtime, Canada releases their unemployment data alongside the US with NFP, unemployment and average earnings all released at 1.30pm, ahead of the Michigan consumer sentiment index and 5-year consumer inflation expectations at 3pm. As always, if you have a currency purchase on the horizon and would like some help along the way, contact the team for some friendly guidance, today.