020 7898 0500
What a month it has been for sterling! Other than the US dollar, against which it has remained largely unchanged, the pound has gained between 1% and 2.5% against its major partners.
The highlight, because it was so unexpected, has been against the euro which, after an entire year trading within a very narrow band has broken free at a level roughly 1.5% higher.
How unexpected was that? Check out our brand-new Quarterly Forecast for the freshest analysis, plus those predictions for pound, euro and dollar from the world’s leading banks. You may (or may not) be surprised at how pessimistic most are about sterling’s next few months.
So, what has been boosting the pound? It’s been the second-best performing currency in the past month, principally due to hopes of interest rate rises tempting investors to buy the pound. But the relationship between rising interest rates (being negative for business and consumers) and rising exchange rates is never quite as linear as it looks, and the euro has been weakening despite the hawkish stance of the European Central Bank (ECB).
Also supporting sterling this summer has been the smooth changeover to a new prime minister with minimal fuss. More than three-quarters of Labour MPs supported Andy Burnham’s nomination yesterday, and he will formally take office on 20 July.
Both of those boosts carry their own potential downsides. If the markets can’t decide if rate hikes are good or bad, if the USA and Iran can’t come to a permanent peace deal and the oil price rises again, and if the markets don’t take to Andy Burnham’s early decisions as PM, including that all-important one on his choice of chancellor, we could easily see it move fast in the opposite direction, downwards. A reminder that between July and September 2022 the Johnson-Truss changeover saw the pound lose 7% against the euro and more than 10% against the US dollar.
So if you are making a major transaction this summer or autumn, why not contact your account manager to discuss taking the risk out of that.
GBP: Sterling reconsiders, then continues upwards
After strengthening solidly for ten days GBP/EUR took a look over its shoulder, wobbled and then continued on its upward course yesterday. The gain has been 1.25% over the month, but given it has largely been based on interest rate hopes (the market hopes for rises even if the rest of us don’t), the next set of high-level data hoving into view next week carries even more importance than usual. It all starts with GDP on Thursday.GBP/USD: the past year
EUR: ECB waits for more data
In recent times the ECB has been the first to move on interest rates, and while it raised its rate last month while the Bank of England and Federal Reserve waited, that has not supported the euro, which has been flapping about, up against some and down on others. So we wait to see what the impact of the hike was on economic performance and hence whether they cut again. There were no clues from this morning’s final inflation for France and Germany which were as predicted at 2% and 2.3% respectively. Next week is quiet for eurozone data.GBP/EUR: the past year
USD: Dollar gets that sinking feeling
You have to go a long way down the list of US dollar currency pairs to find one that it has performed well against this week (rupee, yuan, zloty…), despite hopes of interest rate rises as the minutes of the Fed’s monetary policy committee the FOMC were released. Next week we have plenty of US data coming out, so it will be the currency to watch.USD/GBP: 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 3918 7255 or your Private Client account manager on 020 7898 0541.
