Sterling Volatility Continues

By Simon Eastman

After the shock drop in sterling at the end of last week, we have seen some volatility this week as speculation continues over the different central banks and their interest rate policy.

The pound dropped on talk the Bank of England may look to cut rates in June with chances of another cut later in the year, causing sterling to weaken. Since then, we have seen those expectations backtrack somewhat as the speculative cogs continue to turn. The week has also been shy of data releases of note, with nothing for the UK out yesterday so we looked elsewhere for guidance on what the markets might do.

Firstly, the German consumer confidence survey came out, showing a negative reading but slightly better than expectations and last months reading. We also heard speeches from European Central Bank member Schnabel and saw the release of the EU economic bulletin. Not much to write home about as GBP EUR had already made some early morning gains and USD EUR did very little as the markets processed the report.

With no UK data to process, GBP EUR did very little trading within a 25-point range over the day, trying and failing to make any further gains after the opening bell, whilst GBP USD was more volatile over the day. With both the BoE and Federal Reserve unsure what to do with interest rates, investors are unsure which one to bet on, so whilst the pound started the day off well, making some lost ground from earlier in the weak, the raft of US data in the afternoon cut the rally short. Better than expected jobless claims and personal consumption figures kicked the dollar rally off, whilst trade balance and GDP missing the mark for the year seemed to cut it short. Better home sale figures gave a later afternoon fight back, but the pound rallied on, making back all the losses, ending at the daily high by close of trade.

Today we end the week with another ECB member (Guido) speech in the morning ahead of the switch to the US from lunchtime with key inflation figures coming out at 1.30pm. This will be a trigger on cable depending on the results as the Fed mulls the balancing act between inflationary pressures and interest rate cuts. Anyone with USD requirements, either buying or selling, keep in touch with the team this afternoon for updates or look to lock in your trade this morning to avoid any volatility.