By Ashley Finill
Tuesday was a turbulent day for the Pound on the currency markets. In the morning, the UK posted unemployment figures and although they were not negative and held at last month’s reading of 5.1%, there had been an expectation that a contraction of 0.1% was expected. This gave way to the Pound weakening throughout the day against the Euro, with losses seen of just under one cent. This once again highlights the Pound’s frailties and how small fractions in data releases can affect the unpredictable currency markets.
Trump’s Tarriff’s Threats Over Geopolitical Tensions
It wasn’t all bad news for the Pound though as Sterling held firm against the US Dollar, with the Greenback coming under pressure due to US President Donald Trump throwing his weight around in trying to take ownership of Greenland, as he vows that the US “has to have” Greenland for national security reasons. This has been met with uproar throughout Europe, with leaders coming to the defence of Denmark who own the territory. To make tensions worse, Donald Trump has fought back by imposing tariffs once again and threatening economic punishment on the countries that are supporting the territorial integrity of an EU member; Denmark. An emergency EU summit is to be held this week, should countermeasures be taken, then the risk of another trade war could ensue. Last year on April 2nd, labelled by Trump as Liberation Day, he imposed tariffs on most of the nations across the world, which brought the world to the brink of a trade war, which could have brought with it economic collapse. As a result of the tariffs he mooted, the currency markets reacted with Sterling being the loser overall. The Pound slumped dramatically against the Euro and within 10 days plummeted by nearly four cents. To put that into monetary terms, on a property costing €200k this would mean a cost of £6k more in a space of just over a week. Should you have an upcoming requirement for currency, this is something to seriously keep your eye on. It could be a good idea, now more than ever, to stay in touch with your account manager to discuss your options to mitigate the risk against currency market volatility in these uncertain times.
UK Inflation Up
This morning the monthly inflation figures have been released in the UK and we have seen a surprise rise to 3.4% in December, up from 3.2% in November. The figure is slightly higher than had been expected, with predictions to come in at 3.3%. This now bucks the trend of falling inflation. In quarter four of last year inflation dropped steadily in the UK – in September, October & November we had figures of 3.8%, 3.6% & 3.2% respectively. Those figures allowed the Bank of England to cut interest rates by 0.25% to 3.75% in their last meeting in December. The higher figure this morning almost certainly rules out an interest rate cut at their next meeting in February. Economic Analysts at the start of this year had predicted at least two further cuts, if not three, by the end of 2026. But should inflation continue to rise, the BoE may have to alter these plans. Should inflation rise further this would bring further setbacks to the already under pressure UK economy, with the cost of living still high – the nation is still feeling the brunt in their weekly shops, filling cars on the forecourts, travel, general spending and goods like clothing etc.
Data Remaining Today and This Week.
We continue the busy data driven week with more important releases that are likely to affect the currency market as we have already seen with UK unemployment and inflation. This week is also the World Economic Form meeting in Davos, Switzerland where world leaders are flocking to speak on economic matters. Hold on to your hats though, as today US President Donald Trump has arrived and is due to speak later on and we therefore expect more talk of Greenland and potential tariffs. Remaining data due today – the US post pending home sales at 3pm which is expected to contract to -0.3% from last month’s reading of 3.3%. At 4.45pm ECB’s President Lagarde Speaks, following her colleague ECB member Nagel speaks at 6.30pm. Onto Thursday, at 12.30pm, the ECB Monetary policy meeting accounts are released which contain an overview of the financial market and economic and monetary developments. Over to the US, GDP is posted at 1.30pm which is expected to remain at 3.7%, initial jobless claims will also be posted in the country at the same time. Staying stateside, at 3pm core personal consumption expenditures will be posted at 3pm. Finishing off the week on Friday and likely to cause volatility for Sterling we have Retail Sales posted at 7am, with the figure expected to remain at last month’s reading of -0.1%. Over to the EU at 9am, as PMI data is to be announced and back the UK as at 9.30am PMI data will also be posted. With all those data announcements, we can expect a volatile start to Friday morning’s trading. At 10am, ECB President Lagarde speaks. Into the afternoon at 1.30pm, Canada post retail sales at 1.30pm and finishing over the afternoon moving south the US post PMI data at 2.45pm.