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Sterling is looking for a foothold after going into freefall last week.
Stress in the UK bond market sent the pound tumbling against its rivals last week. By Friday afternoon, GBP/EUR had fallen to its lowest level in more than two months, while GBP/USD lost a whopping three cents over the course of the week.
Amid the bond bust up, Chancellor Rachel Reeves was forced to defend the timing of a trip to China. Reeves is under pressure to come up with a solution to the volatility before it turns into a full-blown panic. Given Labour’s commitment to not raise taxes on workers, it is likely that Reeves will announce departmental spending cuts to rebuild the fiscal headroom.
Widespread demand for the US dollar helped it pile more pressure on European currencies. Figures from December’s non-farm payrolls report showed that the US economy added more than 250,000 jobs in the month, the highest since March.
The Canadian dollar recorded weekly gains over the US dollar, the euro and the pound last time out. Its cause was helped by falling unemployment.
A busy week for UK data features GDP growth, inflation and retail sales. We’ll also see inflation data from the US as well as some crucial reads out of China.
Ahead of next month’s federal elections, Alternative für Deutschland (AfD) co-leader Alice Weidel has called for mass deportations of immigrants. The AfD are currently second in national polls, meaning a future coalition may have to draw on the party’s support to function.
The recent market volatility has set the stage rather nicely for our January-March Quarterly Forecast. You will be able to get your hands on the report from tomorrow. Look out for plenty of analysis on the new risks facing Europe, plus the latest currency forecasts from leading banks and how this might impact your budget.
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: Pound licks its wounds
The past week is a perfect demonstration of how quickly currencies can rise and fall seemingly out of nowhere. GBP/EUR and GBP/USD dropped by 1.5% last week – losses not quite on the scale of previous market panics but a steep fall nevertheless.
GBP/USD: the past year
EUR: Euro basks in bond fallout
The euro is benefitting directly from the ongoing bond saga in the UK. GBP/EUR is almost two cents below where it began the year and could fall further unless the government is able to steady the ship.
GBP/EUR: the past year
USD: Bolstered by labour
The US dollar made a strong finish to last week as figures from the job market pointed to strong economic fundamentals. The economy continued to create jobs at a rapid pace, while unemployment fell below forecasts to 4.1%.
EUR/USD: the past year
For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business account manager on 020 7898 0500 or your Private Client Account Manager on 020 7898 0541.
