Sterling Up on the Majors

By Ashley Finill

This week has been a volatile one in the currency market as we have seen movements in both directions for Sterling/Euro. At the start of the week came a fresh 10 month high for the pound but those gains were short lived as Sterling lost around half cent throughout yesterday trading which again outlines the vulnerabilities and the unpredictability Sterling continues to have in the market. Having said that, GBP/EUR is still trading at attractive rates for those who have a Euro requirement on the horizon so pushing the button now may be prudent to avoid being caught out by any further losses. Sterling has also had a further run on the Dollar which brings the pairing to a 15 month high. There are likely to be a few factors at play as to why we are seeing such gains for Sterling. One being the consecutive interest rate hikes by the Bank of England to help bring down the inflation, which has not made the recovery that had been predicted by the Conservative government, which has seen Rishi Sunak shift the goals posts on his plan on road to recovery. Initially he predicted that inflation would be down to below 3% by October but last month’s inflation figure had stalled which prompted the BoE to intervene once again and increase the interest rate. This gave Sterling a boost of the Euro and US dollar coupled the ECB and the FED easing back from any further rate hikes for the time being as inflation levels have started to fall, with commodities like food and energy prices dropping in both the EU and US. It is also being hinted that bank of England again in August which would be the 13th consecutive rate increase, great for savers but not so much for those with mortgage repayments.

US Support for Ukraine, USD down

Another reason for Sterling’s recent good fortunes on the dollar could be down to the ongoing conflict in Ukraine. The US last week controversially announced that they will be sending a cluster bomb weapon which has seen outcry from nations across the globe with the weapon being banned in almost 120 countries worldwide. The UK also condemned the use of the bomb with Rishi Sunak saying that the weapon should not be used on a battlefield. The US stuck by their decision to provide the weapon to Ukraine anyway. As seen in early 2021 the conflict in Ukraine dictated the currency market with mass losses seen for the pound and the US dollar soared against all currencies as it’s seen as a safe haven currency, but this sought out currency in time of crisis may be starting that status slowly erode. China, in April came out and said that they were trying to step away from their dollar reserves and become more reliant on the yuan, so we could see the Dollar lose ground on other currencies should countries start selling off their dollar reserves. It’s worth pointing out that those looking to purchase dollars can take advantage of the current highs with the GBP/USD market shooting up by 8% this year already. As we have seen this week already with pound/euro, these gains can be reversed at a moment’s notice so holding out for more could prove costly.

Data Next Week

Next week there are key data releases which will almost certainly have a impact on the currency market with the inflation figure for the UK to be released.