Will Sterling’s Recent Gains Continue?

By Matthew Vassallo

The Pound has managed to solidify its position against both the Euro and US Dollar during the early part of the trading week, with investors’ risk appetite for Sterling showed a marked increase from earlier this month.

Whilst its recent upturn against the USD cooled during Tuesday’s trading, last week’s gains of over 2 cents at the high were still very much evident. GBP/USD rates now sit close to a 3-month high and have seemingly moved clear of the record lows seen only a couple of months ago.

The reason for this unexpected upturn is likely linked to the US Fed’s decision to continue to raise their base interest rate at a greater pace than the markets originally anticipated. Currently, there are no indications that this trend will be reversed in the short-term, as the US central bank continues to fight against spiralling inflation figures and rising unemployment levels. A dangerous combination, which has only been exasperated by a worrying slowdown in the manufacturing & service sectors, brought about due to a substantial increase in the Dollar’s value over recent months.

With focus in the US starting to shift towards next year’s primaries ahead of the Presidential elections in 2024, former President Donald Trump has once again found himself in an unwanted spotlight after hosting a recent dinner for the controversial US Rapper Ye, formally known as Kanye West and well know white supremacist Nick Fuentes. Apparently justified by Trump due to “all the nice things Nick Fuentes had to say about me on the Tucker Carlson show”.  It will be interesting to note investors’ reaction over the coming months should the controversial former President’s claims at a second term in the White House start to gain any real traction.

Switching focus to Europe and the Euro, and whilst it has held its position against the Pound better than the USD over recent weeks, there is still an obvious trepidation around investor risk appetite for the single currency.

The EU is currently mired in economic uncertainty, due to high inflation and historically low wage figures across the main lynchpins of the single bloc. With pressure increasing on the ECB to revaluate its recent stance on trying to reduce its monetary policy (QE) scheme, in order to try and help support some of the lesser economies inside the EU, Europe & the EUR may be set for a tough winter ahead.