020 7898 0500
Sterling continues to ride high. Against the US dollar, the pound reversed the downward direction it took on Tuesday and Wednesday, and it ends May almost 2% up on where it started the month.
Against the euro the pound has seen almost three weeks of steady gains and is a good 1.5% above the average of the past year, with occasional spikes close to the highest level for two years.
The pound’s strength has been a result of the General Election starting and, more specifically, the money markets’ belief that the Bank of England (BoE) will delay the expected interest rate cut in June. While independent of government, there is a feeling that the BoE will avoid cutting interest rates just two weeks before an election.
No such problem for the European Central Bank (ECB), which will make its interest rate decision next Thursday, with a quarter of a percent rate cut expected. This is despite the strong labour market: eurozone unemployment fell to a record low of 6.4% in April, according to Eurostat.
We will hear very shortly the latest inflation rate for the eurozone, with a small rise expected. Will this be enough to throw the ECB off course? Any deviation from what is expected from the ECB could have a big impact on GBP/EUR and it will certainly be worth a talk to your account manager about updating your currency plan if trading in this pair.
The US dollar has taken the multiple criminal convictions of leading presidential candidate Donald Trump yesterday in its stride. The US Dollar Index strengthened by 13% yesterday, despite unanimous verdicts in Trump’s hush money trial, the first of four criminal cases he is facing.
With political instability back on the table on both sides of the Atlantic, 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.
There has been little data from the UK this week, but there was good news for home owners, with property prices rising in May to an annualised 1.3% according to the Nationwide Building Society. There will be more mortgage and consumer credit data later this morning from the BoE.
The latest in the UK election has seen the focus switch to the Labour Party’s internal politics, with leading left-wing politicians apparently being ousted ahead of the election.
In geopolitics there has been a marked change in US policy, with Ukraine now allowed to use American weapons to hit targets inside Russia. Ukraine is facing an offensive in the Kharkiv region.
GBP: Pound remains strong
Despite a small wobble in recent days, the pound remains well up on leading currencies such as USD, CAD and JPY compared to the start of the month, although down on NOK and NZD. Against the euro, sterling has held on well to recent gains.
The inflection point in both politics and monetary policy is creating an unpredictable market. Next week there is little data around to confuse the picture further from the UK’s side, but the eurozone interest rate decision could have an impact.
GBP/USD past year
EUR: Euro slides ahead of ECB decision
Yesterday was poor for the euro with further weakening of the currency taking weekly losses to between 0.25% and 1.5% against leading pairs.
It all comes as the ECB is expected to reduce interest rates next week. Good news on the economy, however, with unemployment at record lows. We are awaiting eurozone and Italian inflation this morning, but there is a dearth of data next week, apart from the ECB decision.
EUR/USD past year
USD: Dollar holds up well
For the US dollar the big event will be personal income and expenditure later today. Next week is all about the labour market, with both JOLTs job openings and Non-Farm Payrolls.
USD/GBP past year
For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business account manager on 020 3918 7255 or your Private Client account manager on 020 7898 0541.
