Will the New Year Bring Better Fortunes for the Pound?

By Matthew Vassallo

Whilst Sterling’s advances against both the Euro and particularly the US Dollar cooled somewhat by the time Big Ben’s chimes struck midnight to welcome in 2024, the Pound still ended the year on a sounder footing than many analysts had predicted. This is even more poignant given that the UK’s current economic climate remains clouded in uncertainty, with the Bank of England’s aggressive interest rate hike policy yet to have the desired impact. Inflation rates seemingly marooned at too-high levels, which remain well above the central bank’s intended target of 2% – how these evolve over the coming months will be key to any sustainable longer-term improvement in the UK’s economic conditions.

Whilst the UK has its own issues to contend with, problems lie elsewhere, with Eurozone unemployment and inflation levels also higher than any think tank predictions from this time last year. One of the major problems facing both the UK and Eurozone central banks is that the issues filtering through into both economies have an almost domino like effect, when one area of the economy is struggling it inevitably causes a ripple affect which then impacts upon the next and so on.

This is also true when looking at the US economy. On the face of it the US Fed has seemingly got a better grip on inflation levels, which spiralled globally during the first and second quarters of 2023. However, whilst US inflation seems to be steadily declining the focus has started to switch to the US housing market. With property prices falling and interest rates remaining at 5.25%-5.50%, new home sales were down to the lowest levels seen for almost 12 months. This has a knock-on effect in the rental markets, with a lack of mortgage applications driving rental prices up during a period when the majority of people are struggling due to the global increase in cost-of-living prices and a lack of wage increases to help subsidise these rising costs.

Looking ahead to the first trading week of 2024 and there are little UK economic data releases of note. Wednesday brings with it a host of US Manufacturing and inflation data, whilst on Thursday we have UK Consumer Credit figures for November & the S&P Global Services PMI figures being released. This is coupled with US Jobless figures on Thursday before Friday’s US Nonfarm payroll figures and official Unemployment data. Both could hold particular weight this week whilst also having a knock-on effect in the global currency markets, due to the US Dollar’s standing and current saturation amongst investors.