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Football wins and sunshine helped retail sales
After its surge at the start of the month, sterling is on the back foot this morning, having fallen by 1% against the US dollar and 0.5% against the euro this week.
That still leaves GBP/EUR well above (about 1.5%) the levels it was becalmed in last year, but for anyone with currency exposure right now, or holding out for more, there is a lot of incoming news that makes their position precarious.
Some of that comes in the form of missiles now not only hitting shipping in the Straits of Hormuz from Iran, but threatened from the Houthis in the Red Sea too. The price of oil has shot up to over $100 per barrel once again, and just when the central bankers were gathering to set interest rates. So while the European Central Bank (ECB) held yesterday, Christine Lagarde was clear that a hike is a possibility in September. This might be expected to strengthen the euro more than it did, but seems to be priced in now, so the reaction was muted.
The US dollar has been the currency winner, as a ‘risk off’ attitude grips the markets in the face of a renewed oil crisis. For GBP/USD it’s been quite the reversal, down from over 1.35 to 1.33 in the space of nine days.
For the incoming prime minister, knocking £45 of energy bills and a pound off bus fares may have grabbed the headlines but these savings could be dwarfed if and when the oil shock feeds through into shop prices. Aware of that will be the Bank of England (BoE), which along with the US Federal Reserve (The Fed) meets next week to set interest rates. The current betting is still against a rate increase from either the BoE or Fed, but that’s far from certain.
In the UK’s case, this week’s industrial data all suggested the first oil price surge from the Iran/USA conflict has not fed through too badly into the economy. It showed falling inflation, stable unemployment and earnings, strengthening business and consumer optimism and, just out, surging retail sales.
Some of this optimism is being put down to Jude Bellingham, a sunny summer and a new prime minister, as the GfK consumer confidence index saw its largest month-on-month rise since November 2023. But a good World Cup for England is maybe not something to base large currency transactions on, so to be proactive about your currency plans, contact your account manager today.
GBP: All eyes on oil and Bank
The pound remains strong relative to last year, if not to last week. The run of high-level data ends today with the Purchasing Managers Index (PMI). While most of it was strong, the readings were all taken before this week’s fresh oil price shock so could already be out of date. Next week there is only one game in town, the BoE’s decision on Thursday.GBP/USD: the past year
EUR: PMI today launches new wave of data
Having already raised interest rates by a quarter point in the spring, the ECB felt able to stick this time around. However the markets are nonetheless predicting two more rate rises this year. Coming up shortly we have PMI, and then next week is GDP and inflation. So plenty of room for market movements before most of Europe heads off to the beach for August.GBP/EUR: the past year
USD: Dollar holds at the top ahead of Fed decision
The dollar has been cresting a wave of risk-off attitudes and interest rate rise hopes this week, with the dollar index up close to its best for a year. There’s a smattering of data around today, including PMI, but the main event upcoming is the Fed’s rate decision next week.USD/GBP: the past year
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