Sterling Up on Euro but Rocky on the Dollar

By Ashley Finill

This week has been a bit of a mixed bag for sterling as it’s seen some steady gains on the Euro but has started to lose ground on the US dollar. Yesterday, average earnings including bonuses data was released for the UK with a surprise increase, it was expected to come in at around 7.3% but posted at 8.2%, an increase of 1% from the last release of 7.2%. This jump was the highest annual growth rate since comparable records began in 2001. This gave Sterling a jump start to the day and continued to gain on the euro getting back to levels seen early last week, which presents a decent buying opportunity with those of you with Sterling in hand with a requirement for Euros. Although yesterday’s earnings figure was positive, it had also added some worries for the Bank of England about long-term inflation pressures even after 14 back-to-back increases in interest rates, which brings us to this morning’s big data release in the UK.

Sharp fall for inflation in the UK

Early this morning the inflation figure in the UK has been released which has shown as sharp fall by over 1% from last month’s figure of 7.9%, dropping to 6.8%. With the cost of living crisis gripping the country since February 2022 we are starting to see some pressure released in some sectors with price rises for goods like energy, food and clothing slowly starting to slow, although petrol prices have of late have seen an increase due to the price of oil increasing globally. Prices in some sectors are still rising for hotels and travel but at a slower rate than last month. Inflation is projected to continue to fall throughout the rest of the year with the BoE forecasting that the rate will drop to 5% by the end of the year, however, this is still double the Bank’s 2% inflation target. Improved inflation will certainly give the Bank of England a headache ahead of their interest rate decision when they meet mid September, as a key driver of overall price rises is an increase in wages. For the first time in nearly two years, wage growth in the private sector surpassed the rate of inflation. As we have seen over the past 18 months, Sterling has been heavily supported by the 14th consecutive rate increases from the BoE, so should they hold back on any further interest rate increases the pound could suffer and lose its steady gains made on both the Euro and US dollar. Some of you with requirements for currency over the next few months may not want to take gamble on decisions that are out of your control, with a more risk averse attitude you can take full advantage of our forward contract option, this secures your currency at more attractive rates seen today and peace of mind that you aren’t caught out by the unpredictable economic sage which continues to loom of the UK economy and currency market with uncertainty a foe of the fragile pound. Contact your currency consultant today for professional and friendly guidance.

Remaining data today and this week

A busy week already this week on the data front as we go over the hump and move into the 2nd half of the working week with more important data to be release which will also certainly impact the currency markets. This morning at 9am in the EU, Gross Domestic Product is post which is expected to remain at 0.3% posted last month. Over to the US in the afternoon at 12.30pm as building permits, housing starts and industrial productions is released. At 6pm the FOMC minutes are also released, The Federal Open Market Committee organises 8 meetings in a year and reviews economic and financial conditions, this insight may cause some late market movement this evening. Early hours of the morning the unemployment rate in Australia is to be released, it is expected to remain at last months reading of 3.5%. At 12.30pm, the US release initial jobless claims which is expected to come down from last months reading of 248K. Finally, on Friday retail sales for the UK will be posted early doors at 6am, the figure is expected to be a contraction from last month of 0.7 to -0.5% and over -1% year on year. Should we see a different figure to what is expected then expect some volatility to start of Friday morning, those of you with requirements on Friday may be prudent to look at rates on Thursday to stay ahead of the curve and take the risk away from any volatile negativity for Sterling.