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Sterling has the upper hand against the euro
Over the weekend sterling climbed to a new highest point since the early spring of 2022 against the euro. It is now 5.5% stronger than this time last year and around 7% stronger than the average of the past five years. Sterling continues to struggle against the US dollar, having lost roughly two cents since the election on Tuesday.
Is GBP/EUR’s new high more down to sterling’s strength or the euro’s weakness? The euro has certainly been on the back foot since the US election result, falling between 2% and 0.5% against most rivals and 1.75% down against a basket of currencies. Sterling has had its ups and downs since the result but overall the sterling index is only down by around 0.35% since the result.
While the re-election of Donald Trump could be bad news for the UK economy it is likely to be considerably worse for Europe’s, with tariffs on goods exports and the potential withdrawal of aid to Ukraine.
The pound has been pegged back by the drop in stock markets as British businesses count the cost of the budget the previous week. Retailers, caterers and the entertainment sector will all suffer from the lowering of the National Insurance contribution starting level from £9,100 to £5,000. Shares in baked goods retailer Greggs fell by 6.8% and in M&S by 4.5%. Sainsbury’s says it faces an extra £140m bill.
On Thursday the Bank of England (BoE) made only its second interest rate cut for several years, dropping another 25 basis points. While a larger cut was an outside possibility, the previous week’s tax and spending budget is viewed as inflationary by the BoE and so is likely to curtail future interest rate cuts. Good news for sterling, if another blow for business.
However, there could be good news for some big companies. HMRC has to repay £700m in tax to various British businesses after the courts ruled against an EU state aid clampdown.
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 Business Account manager on 020 3918 7255 to get started.
GBP: Pound’s gains at risk from earnings data
Compared to last Monday sterling’s only large move (more than 1%) has been against the euro, along with small gains on SEK and CHF. Tomorrow is the start of a round of high-level data, with unemployment and earnings data from 7am.
GBP/USD past year
EUR: Mixed month for euro
For those holding euros, the good news is that while losses against the dollar have been significant, at around 2% over the past month, and around half that against the pound, it remains up over the past month against most other rivals, especially the Scandinavian and Antipodean currencies. The first major data release this week is the ZEW Economic Sentiment Index tomorrow.
EUR/USD past year
USD: Inflation reading the week’s big event
The dollar’s rises have been notable since the election result on Wednesday, but hardly spectacular. That’s partly because of the US Federal Reserve’s dovish 25bp interest rate cut and comments from its boss Jerome Powell the day after. The markets will be quiet today, if not closed, for Veterans Day, but things liven up with the inflation reading on Wednesday.
USD/GBP past year
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