020 7898 0500
It was a strong day for the euro on Tuesday, with the currency climbing 0.2% on the pound and over 0.6% on the dollar. Sterling continues to gain on the dollar, up another 0.5% in yesterday’s trading, and more than 1% than this time last week. Though this morning’s higher than forecast inflation rise may put an end to that.
The UK’s Office for National Statistics revealed that inflation rose more than 3.5% in April, above even the 3.3% predicted by analysts. The increase was pushed by the bundle of price hikes that saw the month dubbed ‘Awful April’ – water bills, energy costs, council tax and transport fares all jumped at the start of the new tax year.
While the Bank of England predicted inflation would increase to as high as 3.7% by September before trending downwards to 2%, the above-expected numbers put extra pressure on the Bank’s upcoming Interest Rate decisions. Just yesterday, the Bank of England’s chief economist Huw Pill warned the Monetary Policy Committee was cutting rates too quickly and not rigorously tackling inflation.
On Tuesday, US President Donald Trump visited Congress to put pressure on Republican lawmakers to pass his “big, beautiful bill” that will extend the tax cuts he passed in 2017 and reduce government spending further.
The uncertainty around whether the bill will pass and the impact it would have if was ratified may be behind the dollar’s decline this week. After all, the push to cut taxes comes days after Moody’s downgraded the US’s credit rating to AA1, increasing the government’s borrowing costs.
The euro appears to have benefitted from the market’s expectations of high UK inflation and the uncertainty around the US tax bill. Tuesday’s rise on the dollar and pound wasn’t linked to any major positive economic data release or policy announcement, and it may well have been that stability that attracted traders.
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 Business Account manager on 020 3918 7255 to get started.
GBP: Inflation higher than predicted
Buoyed by trade agreements and last week’s GDP figures, sterling continued its climb on the dollar on Tuesday, gaining 0.5%, though it slowed slightly against the euro. However, the UK’s run of good news may be over, as inflation rose higher than predicted in April, which could see the Bank of England slow its pace of interest rate cuts.
GBP/USD past year
EUR: Calm day sees currency rises
The euro had a strong day on Tuesday, gaining 0.2% on the pound and 0.6% on the dollar. Though, that climb may be due to hesitance of the UK inflation rate and uncertainty around the incoming US tax bill as much as it is about the strength of the eurozone market.
EUR/USD past year
USD: Another day of decline
The dollar fell against a range of currencies on Tuesday, losing 0.6% against the pound and 0.8% against the euro. With Trump piling pressure on Republican lawmakers to extend and expand his tax cuts and the cost of US government debt increasing, the markets are unsure of the strength of the dollar.
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.
