Weak UK Data Dents Sterling Gains

By Simon Eastman

The morning started with some as-expected readings from Germany surrounding inflation, giving the euro an initial boost early on, ahead of the European open. As the markets opened in the UK, we had unemployment figures, which showed an increase, plus average earnings which showed a dip from the previous month, with those in new employment down over 20,000 from the previous month. All signs that the increases we have seen in interest rates and the cost-of-living crisis is having an effect on the labour market, which is a key indicator the Bank of England may need to cut interest rates sooner than had previously been expected. Regular readers will know, talk of, or an actual cut in interest rates is usually a negative for the currency involved, as investor returns shrink, so they are more likely to buy up another currency with better returns or a more stable return, depending on their risk appetite.

After lunch with the opening of the US markets, we saw another steep decline for the pound against the greenback, which was joined by the euro as a raft of US data came out better than forecast. The consumer price index increased month on month and year on year for every reading including with food and energy prices accounted for, giving the dollar a much-needed boost. We saw the greenback make a half cent jump against the pound and a third of a cent jump against the single currency.

Markets took a softer inflation outlook for the US from the figures and heightened its stature as a safer haven currency again, although over the rest of the day, the pound did make some gains back, ending up pushing familiar resistance ceilings against the euro and dollar.

With uncertainty afoot surrounding UK interest rates, it may be prudent to get any upcoming purchase in the forefront of your mind, as even though not quite at the peak, we aren’t far off and any talk of a cut in interest rates with more certainty than just market speculation, is more than likely to reduce sterling’s buying power. Speak to your consultant about the options available for securing your currency, be it a forward contract or limit order for those more optimistic out there.

Wednesday brings a raft of UK data in the form of manufacturing, industrial production, and services figures, plus GDP and trade balance, some key monthly readings. Other than that, its quiet, with EU industrial production readings and an ECB member speech before lunch and no data form the US in the afternoon.

With that in mind, speak to one of the team today for some friendly guidance on your upcoming currency requirement.