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The is hovering anxiously ahead of the Bank of England's next interest rate decision.
Thursday’s Bank of England interest rate decision is the headliner of another big week for the pound. GBP/EUR ended Friday at its highest level in over three weeks but the prospect of another 0.25% cut to interest rates threatens that platform.
These matters soon became secondary to the brewing trade war. Over the weekend, US president Donald Trump outlined blanket tariffs of 25% on Canada and Mexico and 10% on China. Trump then took aim at Europe and told Americans that his aggressive measures were likely to cause “some pain” in the near future.
European stock markets opened the week in freefall. Trump said that tariffs on the eurozone would “definitely happen”, only slightly softening that stance to “might happen” when it comes to the UK. There is a very real risk that further tariffs and tit-for-tat retaliation by affected countries boils over into the kind of trade shock the world hasn’t seen in generations.
Friday brought some key German data, with both employment and inflation the subject of scrutiny. It was a mixed bag in terms of results – unemployment increasing as inflation fell back to 2.3% in January after a jump a month earlier.
After cutting interest rates last week, European Central Bank (ECB) president Christine Lagarde teamed up with European Commission president Ursula von der Leyen to pen a joint piece in the Financial Times. In the article, the pair acknowledged the challenges facing Europe but struck a positive note on the way forward. “We are ready to do whatever is necessary to bring Europe back on track”, the piece read.
In the world of business, medical giant AstraZeneca cancelled its plans to build a £450mn vaccine manufacturing plant near Liverpool. AstraZeneca cited several factors for its decision, including the amount of government funding on offer.
The week ahead looks treacherous for sterling with Thursday’s interest rate decision presenting significant uncertainty. More busy times for economic data see more eurozone inflation reads, US jobs and industry activity reports, as well as some more UK property news in the form of the Halifax house price index.
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GBP: Bailey’s big test
The Bank of England’s Thursday meeting is the clear focus for the pound this week. Although most economists think the Bank is poised for a cut, recent data has provided a repost to that view. All eyes will be on the Monetary Policy Committee for the biggest decision of its easing cycle.
GBP/USD: the past year
EUR: Data pile-up continues
The euro still has some significant data to navigate after last week’s pile-up. This morning’s eurozone inflation data will help to shed some light on the ECB’s next week, while EUR/USD remains under pressure. According to Deutsche Bank, EUR/USD could move towards parity in the coming weeks.
GBP/EUR: the past year
USD: Stars align for dollar
You would be hard-pressed to find a more favourable set of conditions than those the US dollar enjoyed on Friday. Trump’s hard line on trade and more evidence of a thriving economy caused the US dollar to zoom ahead of the pound and the euro.
EUR/USD: the past year
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