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The pound rose to a one-year high against the US dollar yesterday
Sterling benefited from an updraught of economic developments to end budget week almost 0.5% up against the euro and touching eight-month highs against the US dollar. EUR/USD also found some traction, gaining more than 1% over the course of last week.
The pound’s gains mark a stark departure from the volatility around previous fiscal events. However, tempted as Jeremy Hunt may be to chalk up its strength to his budget, there were broader forces at play both on the continent and across the Atlantic.
Last Thursday’s European Central Bank (ECB) interest rate decision seemed run of the mill, yet it was anything but. Pestered by questions from the media, ECB president Christine Lagarde eventually let slip that the central bank was targeting June for its first round of rate cuts. There were also signs in wage growth data that suggested inflation was being wrestled under control for good.
Meanwhile, non-farm payrolls for the US came in blistering hot on Friday afternoon. Its economy added 275k new jobs in February, significantly higher than the forecasted 195k and January’s 229k. This came after Federal Reserve chair Jerome Powell signalled he had June in his line of sight for the first batch of rate cuts.
Remember, Andrew Bailey’s Bank of England have stayed stumm for the most part, often pointing to the need for restraint on interest rates. So, while a sense of clarity emerged for other currencies, the pound climbed steeply as markets became increasingly confident of when the ECB and the Fed will cut.
From the budget to the crescendo of Thursday and Friday, it was an action-packed week for currency markets. It just goes to show that you should never leave your finances up to chance — you can never assume anything in such hot-headed markets.
Here’s what to look out for this week…
German inflation and UK unemployment data kick off the week in earnest tomorrow. Tuesday also brings US inflation data, which will be under real scrutiny after last week’s payrolls data.
UK GDP arrives on Wednesday, which may well test the recent strength of the pound.
Thursday is slightly quieter, with only US PPI likely to move markets in any significant way. The week is the rounded off French inflation and our old favourite, the Michigan Economic Survey and its preliminary statistics for March.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 3918 7255 to get started.
GBP: Testing new highs
Who could say they expected this? The pound was relatively unmoved by the chancellor’s speech and the 2p-reduction to national insurance, but ended the week zooming up against its main rivals. A sign of strength? Perhaps, but more likely it was in response to developments from the eurozone and the United States.
GBP/USD: the past year
EUR: Course set for June
It now seems the ECB has committed to cutting interest rates in June. A lot can change in that time though, and the eggheads at Bloomberg tempered this by saying that the ECB may be waiting for the Federal Reserve to cut before it can do itself. One to watch as we head into the summer.
GBP/EUR: the past year
USD: Job market fights back
Last week, we wondered if the US labour market had finally started to slow. Well, not according to Friday’s JOLTs job openings, which came in far hotter than most had expected.
EUR/USD: the past year
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