By Matthew Boyle
Last week saw a bad run for the pound, with news that retail sales in December fell by 0.3% with expectations of a 0.4% growth. With UK consumers holding on to their money over Christmas this points poor economic growth over the coming months and as such has seen the Pound drop across the board, noticeably against the Dollar and Euro – now almost 3 cents down from its recent near 2.5 year highs.
With food sales being the largest sector of spend affected, this has now changed market sentiment – higher taxes, increased wages and an increase in National Insurance coming in April means pressure on retailers will continue and so prices will remain higher for longer, which is likely to keep consumers feeling reluctant to spend. This reduced spending will cause inflation to drop with the Bank of England now heavily expected to curb interest rates from the current rate of 4.75% when they meet in February.
The result of the slowing economy and pricing in of this rate cut has caused the drop.
With this in mind, Euro buyers may want to consider acting now ahead of fears of ongoing poor economic performance whilst sellers may want to take advantage of the near 3 cent drop should the rate cut see a revival in UK spending and cause exchange rates to recover.
In the US today, we see Donald Trump’s inauguration as he is sworn is as US president for the second time. Undoubtedly since the news of him winning the election the Donald effect has been in play – seeing the US dollar strengthen amidst sentiment he is a good economic leader for the US. Certainly in the coming weeks and months this will be an interesting watch to see if this continues or if the currently flagging Pound and single currency can stage a comeback against the greenback.
This week there are a few data releases of note but significantly and the ones to watch for are UK unemployment data released tomorrow and UK, Eurozone and US PMI Data on Friday – both of which will be key indicators as to the respective central banks interest rate policies moving forward.
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Monday
07.00 EUR German PPI data
17.00 USD Presidential Inauguration
Tuesday
07.00 GBP Unemployment Data
13.00 CAD Inflation Data
Wednesday
15.00 EUR ECB President Lagarde Speech
Thursday
13.30 USD Jobless Claims
15.00 EUR Consumer Confidence
Friday
09.00 EUR PMI data
09.30 GBP PMI data
14.45 USD PMI data