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GBP/USD fell as US inflation data ticked up again.
The UK economy recorded its second consecutive month of growth in February as GDP expanded by 0.1%. That figure may seem paltry, but it could prove all important as the UK looks to emerge from its technical recession in a rapid manner.
Not that good news on the GDP front meant good news for sterling. The pound lost almost three cents to the US dollar last week as the perfect storm of US inflation and interest rate expectations rolled in. GBP/USD ended last week at its lowest level since November 2023.
Sterling had a better time of it against the euro, advancing by almost a cent week on week. This came after the European Central Bank decided to hold interest rates for now, but seemed to suggest the first cut could be just around the bend.
In a highly anticipated review of the Bank of England’s forecasting, Nobel laureate Ben Bernanke said it must revamp its main economic model to avoid future failures. The review came in response to the Bank’s failure to warn against runaway inflation over the past several years.
Last week provided the perfect evidence of just how quickly currency markets can move. It’s something we highlight often in our currency notes as we’ve seen our fair share of transactions scuppered by turbulent markets.
One thing you can do to protect yourself is to be proactive in managing your currency risk. Our Quarterly Forecast, the next edition of which is due to arrive tomorrow, can help you to do that. In the report, we look at everything that matters to your budget, from central banks and interest rates to geopolitical risks, on land and at sea. We highly recommend you download your copy, free of charge.
Here’s what to look out for this week…
Us retail sales are Monday’s main event, before UK unemployment arrives on Tuesday.
The UK remains in the spotlight on Wednesday with March’s inflation release, before Thursday brings US jobs data and a couple of speeches from Fed governors.
Friday ends on a slighter quieter note, with UK retail sales the highlight.
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: UK avoids washout
The UK economy grew by 0.1% in February, despite a miserably wet and windy month. Manufacturing and services both suffered as a result of the weather, but it was not enough to totally dampen economic activity.
GBP/USD: the past year
EUR: June seems likely
Christine Lagarde was at pains to point out the upside risks to inflation that remained at last week’s press conference. Much can change between now and June, but it still seems as though it is the likeliest time for the first ECB cut.
GBP/EUR: the past year
USD: The new consensus
Gradually, US markets have come to expect fewer interest rate cuts from the Fed this year. Employment data and resilient growth have made this conclusion inevitable, although the about face continues to boost the US dollar.
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.
