By Nick Harrison
The US Dollar has been the big talk of the town recently as it continued its surge against the major currencies last week. Right now, the Greenback is trading at the highest level in over a year against the Euro and a six month high against the Pound. The dust has settled now since the US Election and it’s safe to say that Trump’s Republicans have well and truly turned the US political establishment red. Talk of import tariffs are back on the agenda for when the President elect takes his seat again in the White House and this is likely to increase inflation as this will likely affect consumer prices. The US economy is resurgent at the moment and experts are predicting a bullish outlook to US equities, a strong Dollar vs the G10 currencies and a steeper treasury curve. This was all supported by US economic data last week as we saw a solid posting of inflation data and better than expected employment, retail sales and manufacturing data. This is also potentially good news for the UK economy though, as long as the “special relationship” continues and Trump doesn’t impose high tariffs on UK imports. 2025 will be a very interesting year for UK-US relations.
The Pound has returned to a favourable level against the Euro again, despite the short term fallout from the budget and a weaker than expected GDP figure on Friday. As mentioned, the Euro is trading at a 12 month low against the USD at the moment, so it is being seen as the weaker of the major currencies. Inflation in the Eurozone has dropped significantly since 2022, so despite the European Central Bank’s highly cautious approach to cutting interest rates, investors are expecting more cuts to follow, thus weakening the Euro.
On Tuesday, we hear the Bank of England’s Monetary Policy Report hearings. Earlier this month the MPC chose to cut the interest rate by 8-1 votes.
These hearings will give more insight into inflation and economic outlook for the UK and should therefore give us more of a clue as to whether a further cut is likely in December. Remember – a lower interest rate = a weaker currency generally, which can make huge difference in your cost of buying foreign currency. Just a 2 cent drop in the GBP/EUR rate would cost you up to £3,000 more for a property worth EUR 200,000. So, do keep in touch with A Place in the Sun Currency as a simple conversation with us could save you thousands of Pounds.
The highlight of the week is likely to be the UK inflation figure which is released early on Wednesday morning. Inflation is directly linked to how the Bank of England decides about their interest rate policy, so look out for potential volatility in the market on Wednesday morning. The forecast is an increase to 2.2% after a previous showing of 1.7%. A higher figure might strengthen the Pound as this lessens the likelihood of an interest rate cut. A lower figure might weaken the Pound, so we will be keeping a keen eye on this number for you.
The rest of the week is packed with economic data from the UK, US & Eurozone, so please check out the most important data releases below….
TUESDAY
UK MPC report hearings 10am
WEDNESDAY
UK CPI figure 7am
ECB President Lagarde speaks 1pm
THURSDAY
US Unemployment claims 1.30pm
FRIDAY
UK Retail Sales 7am
French Services & Mnfg PMI 8.15am
German Services & Mnfg PMI 8.30pm
UK Services & Mnfg PMI 9.30am
US Services & Mnfg PMI 2.45pm