By Nick Harrison
Let’s take a moment away from tariff threats and concentrate on domestic matters. Tuesday saw the release of average weekly earnings and wages (excluding bonuses) in the UK and both figures came in lower than expected. Average weekly earnings stayed at 5.6% for the three months leading up to February with wages continuing to rise to 5.9%. This figure though came in below city forecasts and has relieved a bit of pressure on the Bank Of England who are looking to cut their interest rate to 4.25% next month. A cut though and lower inflationary pressures will hurt the Pound as it attempted to form a minor recovery against the Euro yesterday after losing over 5 cents against the single currency in just 12 days.
The claimant count figure was also released in the UK on Tuesday. This figure is the change in the number of people claiming unemployment-related benefits during the previous month. The number came in better than expected at 18.7k versus the forecasted 30.3k, so it is likely this figure helped Sterling’s brief recovery of around a cent against the Euro earlier in the week. The number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor-market conditions. Unemployment is also a major consideration for those steering the country’s monetary policy, so more food for thought for The Bank Of England’s MPC.
So on the subject of the MPC setting their interest rate, the key inflation figure was released yesterday morning. The year-on-year Consumer Price Index came in at 2.6% versus the forecast figure of 2.7%. Consumer prices account for a majority of overall inflation which is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate. The Pound has seen a downturn from this as this figure now implies the Bank of England are now very likely to cut their interest rate, thus triggering a further Pound selloff. This is further proof that Sterling remains under pressure, so it is important to think about locking in your GBP/EUR exposure at this level to mitigate any further downside risk.
Yesterday saw the release of the US Retail sales figures. Retail sales is the primary gauge of consumer spending, which accounts for the majority of overall economic activity. Core and retail sales came in slightly higher than expected, but the US Dollar still remains under pressure since Trumps tariffs have been driving market activity recently. As we have seen, the Pound has risen over 5 cents against the US Dollar recently amidst the turmoil that has been caused by Trumps second term as US President, so this continues to be the current market trend.
Today see’s the European Central Bank decide on their interest rate. There is a forecasted cut in the refinancing rate from 2.65% to 2.4%. This will surely be an interesting release, especially with ECB President Lagarde making her statement afterwards. Investors will want to hear what she has to say in light of the recent market turmoil and to see if the ECB’s outlook has changed as a result of it.
So still plenty to digest as domestic matters in the UK, US & Eurozone could see further volatility in the FX market. We have seen huge impacts to the cost of your currency in recent days, so it is important that you reach out to A Place in the Sun Currency who will work with you to help make informed decisions about when to make your currency conversions. Today is the last day of trading for four days in the UK as we approach the Easter bank holiday, so we will be on hand today to help manage expectations of the FX market outlook.
Major data releases before the bank holiday weekend
ECB Interest Rate Decision 1.15pm / 1.45pm Press Conference
US Unemployment Claims 1.30pm