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Safe-haven assets benefitted from a change of tone last Friday.
Sterling surged beyond recent highs against the euro last Friday, before a sharp change in tone meant the week ended on an altogether different note. Markets took a distinct turn to the safe-haven US dollar, as political and geopolitical threats helped depress demand for European currencies.
In truth, it wasn’t just the pound that came under the pump. The euro faced pressure too, even after June’s preliminary Michigan Consumer Confidence pointed to a worsening in the American economy’s outlook.
The pound opened the week at its lowest in over a month against the US dollar. EUR/USD sank by 0.5% last week, taking it to more than 1.5% down since the start of June.
The speed of last week’s moves are a reminder of just how dangerous it is to trust markets will stay right where they are for any length of time. For a short while, it was possible to benefit from the best GBP/EUR rate in over 22 months, but that soon changed. It is tempting to surf the rise and falls of currency pairing, but in our experience, that is rarely a good solution.
Things seem to be going from bad to worse for Rishi Sunak. With some of the latest polls putting the Conservatives behind Reform in terms of vote share, Nigel Farage leapt on the issue, stating that he was in fact the leader of the opposition. Farage would later challenge Keir Starmer to a debate, although it’s hard to see a world where that would happen.
In France, Emmanuel Macron is facing similar trials. News that left-wing groups had rejected his offer to create a moderate alliance sparked fears of a damaging defeat, particularly as his public approval level crashed to its weakest in over five years.
Politics is sure to be a key driver of currency volatility in the days and weeks ahead. Keep your eyes peeled in these emails and across our social media channels as we break down how the upcoming elections could impact your budget.
Here’s what to look of for this week…
Early-week highlights include the German ZEW Economic Sentiment Index and US retail sales, both of which will hit screens on Tuesday.
Wednesday’s focus will be on the UK’s inflation figure for May, which could see the UK cross a key benchmark (more on that below).
Thursday will feature the Bank of England’s interest rate decision. While data may be pointing at a rate cut, a myriad of factors, including the proximity to the general election, suggest policymakers will probably steer clear of this.
UK retail sales and German HCOB manufatcuring PMI help to end a week that has more of a European flavour than many recent ones.
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: Back under target?
Some economists are predicting that UK inflation fell to 1.9% in May. That’s significant due to the Bank of England’s target of 2%, considered the goldilocks region for price rises. In that event, expectations that the Bank will cut interest rates at August’s meeting will surely grow.
GBP/USD: the past year
EUR: Seeking cover
When it isn’t fighting off a pound surge, the euro has struggled under pressure from the US dollar. After electoral drama in France, the euro is seeking something, anything to go right. Perhaps this week’s economic releases will provide an escape route, although things are very much in flux.
GBP/EUR: the past year
USD: Surprise dip
The University of Michigan’s preliminary study for June found an unexpected dip in consumer confidence. June’s first estimate came in at 65.6, below May’s 69.1 and well shy of forecasts of 72.
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.
