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The pound fell back yesterday, underscoring the need for robust risk management.
After a string of blistering performances, the pound finally became reacquainted with reality on Wednesday afternoon. Sterling lost over half a cent against the US dollar and fell back from 21-month highs against the euro.
For its part, the euro also lost some value to the US dollar yesterday. That came after Germany’s inflation report for May and a slightly less positive mood in wider markets.
German headline inflation increased from 2.2% to 2.4% in May, the first month-on-month rise since February. That increase was in line with estimates from economists, and in a more encouraging sign, core inflation held steady at 3%. Energy costs fell despite the expiration of the German government’s ‘Preisbremse’ – or ‘price brake’ to you and me.
After remarks from Federal Reserve speakers earlier this week, it seems markets are once again becoming less confident of interest rate cuts, a twist nobody saw coming. With US stock markets weaker in response, the US dollar could benefit from some safe haven dynamics, assuming you haven’t already thrown your book of economic convention out the window.
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In other news, Czech billionaire Daniel Křetínský has reached an agreement to buy the owner of Royal Mail in a deal worth £5.2bn. Křetínský promised to rejuvenate the service, although the deal is likely to be the focus of significant scrutiny as government ministers look to tread carefully.
Junior doctors in the UK have announced they plan to hold a strike during the election campaign. The British Medical Association (BMA) said that junior doctors will stage a full walkout from 7am on June 27 to 7am on July 2 unless the government returns to the negotiating table.
There’s little indication that Rishi Sunak is going to turn all Harold Wilson on us, though. The Prime Minster had a quieter day on the trail yesterday, while Keir Starmer sought to defuse the Diane Abbott situation. Stay tuned for plenty more election coverage in the coming weeks, with deep dives on how you can safeguard your budget amid the volatility.
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: Finding its ceiling
The pound’s progress bumped up against something of a ceiling yesterday, which saw it retreat against the euro and the US dollar. With an election around the corner, our money is on sterling bobbing up and down during the campaign, but elections are one of those events that underscore just how vital it is to manage your currency risk.
GBP/USD: the past year
EUR: Will ECB hold their nerve?
The media have begun reporting with more confidence that the European Central Bank (ECB) will cut interest rates next week. The question is whether data like yesterday’s German inflation report makes them reassess their position.
GBP/EUR: the past year
USD: Risk-off boosts dollar
The US dollar was once again the direct beneficiary of geopolitical uncertainty and market risk sentiment yesterday. The US dollar saw a big influx in volumes, which helped it chase back recent progress from its European rivals.
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.
