Sterling’s outlook as clear as mud

By Lauren Buckner

Sterling seems to be enjoying some small respite this morning having lost ground late last week against both the euro and the dollar. Following on from Monday’s vote of no confidence against the PM Boris Johnson, which he managed to survive, the immediate political uncertainty has cleared. Ongoing analysis of the results however, (211 in favour and 148 against) means that scrutiny of the PM’s position continues. With the economic outlook in the UK continuing to worsen the additional uncertainty that losing the Prime Minister would put significant additional pressure on the Pound.

Yesterday’s retail sales figures showed a 1.1% decline as shoppers avoid over-indulging in the face of the current cost of living crisis with rising fuel prices still dominating headlines and an immediate challenge on consumers’ purse strings. The prospect of further interest rate rises in the UK from the Bank of England has become more of an omen for sterling than a blessing as the risk of recession and spiralling household bills continues to increase. Current buying opportunities with the Pound should be considered.

In contrast the European Central Bank (ECB) meet tomorrow amid rising expectations of a series of interest rate rises for the bloc. As German inflation tipped through the 8% mark it is now a question of ‘when’ rather than ‘if’ the ECB begin to raise interest rates. The ECB President Christine Lagarde has already signalled to the market her expectation that by September negative interest in the EU will no longer exist. Moving away from a dovish tone and an incredibly cautious approach to interest rates could boost the value of the euro in the short term despite the issues with the cost of living being experienced there.

For the US we continue to see a rosier picture of economic contentment with investment markets continuing to boom, a jobs market moving in the right direction and a central bank raising interest rates to slow consumer spending as opposed to firefighting high inflation. The USD understandably remains strong in current circumstances but for GBP and EUR the outlook is far less certain – ‘prepare for the future but do not dismiss the present’ could be a good approach to your currency requirements right now!