Currency Note

Pound hits new 2023 high against euro

By Alex Bennett May 19th, 2023

Sterling hit another 2023 high against the euro yesterday, ending the day 1.75% up on the month and 0.5% up on last Friday. This was in marked contrast to its losses against the US dollar which amounted to around 1% on the week.

So far this morning there has been little movement. The Gfk Consumer Confidence reading for the UK came in at -27 overnight. This is the fourth improvement in the mood of householders about their personal finances for the year ahead in consecutive months, and the best figure for 15 months.

World leaders are gathering in Japan for the G7 meeting, but President Biden has not so far joined them as he grapples with the debt ceiling issue. His government requires opposition Republican support to allow it to borrow more money and pay its bills. There has been some doubt as to whether this will happen, with potentially catastrophic results. However, with “cautious optimism” being reported on a  deal, the dollar has strengthened significantly.

In the UK, according to a senior economist at the Office for Budget Responsibility, the era of “massive house price rises” is coming to an end. David Miles said that working from home that offers people more choice of where they live, which combined with interest rate rises means the next 40 years would be very different to the past 40.

In Europe, EU Commission president Ursula von der Leyen has called for “guardrails” to be placed around AI technology, even as BT announces 55,000 job losses with up to a fifth to be replaced with AI. In the meantime, the rail unions have announced more strikes, with three strikes over four days over the school half term.

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GBP: Pound strengthens on euro, falls against dollar

Sterling hit another high against the euro yesterday and has stayed there this morning.

Overall, the past week has been mixed, with losses against all of the dollars, especially the New Zealand (losing over 1%) and around 0.4% against the US dollar. However there have been strong gains against the Scandinavian currencies and the Japanese yen as well as the euro.

Driving rates from the sterling side has been a softening of the labour market (i.e. higher unemployment) and comments from the Bank of England governor Andrew Bailey about the Bank’s more positive expectations for economic growth.

Next week is fairly busy for data, with PMI on Tuesday and the all-important inflation figure on Wednesday where a big drop is expected, to 8.5% from the previous month’s 10.1%.

GBP/USD past year

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EUR: Euro on backfoot as household worries mount

It’s been a parlous week for the single currency with big losses against the various dollars and a small loss against sterling.

The big shocker this week has been the ZEW Economic Sentiment Index for both the eurozone as a whole and German specifically. Both were significantly down on expectations, with Germany’s at a five-month low.

Data early next week includes a different reading for eurozone consumer confidence on Monday and a huge amount of PMI on Tuesday, which will indicate future business confidence (or not).

USD: Dollar’s May rebound continues

It’s been a positive week for the US dollar, strengthening against most major currencies (except for resurgent New Zealand and Canadian dollars), including close to 1% against sterling.

The drivers for the dollar’s success have been the possibility of the US debt ceiling crisis being averted, alongside more positive economic data that raises the possibility that the Fed can continue raising interest rates at least one more time. Later today we will hear from Federal Reserve chair Jerome Powell, who may give some hints on that.

Next week starts fairly light on data but ramps up on Tuesday afternoon with PMI.

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