Currency Note

Sterling continues to strengthen, benefits from weakening dollar

By Smart Currency March 23rd, 2017

Last week’s more positive economic data and outlook have helped boost the pound ahead of the UK triggering Article 50 next week.

Visit our Brexit Business Resource Centre to see the first few profiles in our series of key people involved in the Brexit negotiation process as well as our infographic on how sterling weakness affects a business’s cost base.

And here’s what’s been happening in the sterling, euro and dollar markets.

GBP: sterling dipped briefly after terrorist attacks

The major piece of news yesterday were the terrorist attacks in Westminster. Four people, including a policeman and the attacker, died in the incident. Just after the attack, the pound briefly dipped but recovered all of its losses shortly after.

Yesterday sterling traded close to its highest level against the US dollar in nearly a month. It’s been strengthening on the back of the strong, bittersweet inflation figures released on Tuesday, which were accompanied by a more-upbeat-than-expected statement from the Bank of England.

Inflation accelerated to 2.3% in February, exceeding the BoE’s 2% target for the first time since 2013. In addition, a slightly negative sentiment surrounding US President Donald Trump’s ability to push through pro-growth policies has put pressure on the dollar. So it’s been factors in both the UK and the US that have pushed GBP/USD higher.

On the docket today, we have the key UK retail sales figures. With inflation soaring, there is now some downside risk that retail sales may disappoint and miss the forecast level of 0.4%. There have already been two consecutive negative numbers.

EUR: Eurozone prepares for Brexit talks

On Wednesday we saw the euro push higher against the US dollar on the back of a more stable political outlook in Europe and scepticism about Trump’s ability to push through pro-growth policies across the pond.

Meanwhile the Eurozone’s current account surplus fell to its lowest level in a year in January as exports dropped.

On the Brexit front we saw more signs of a tough few months ahead for the divorce proceedings between the Eurozone and the UK. Firstly, there were more reports surrounding the Brexit Bill and the cost of Brexit (a figure around €60 billion has been thrown around). UK government officials are questioning both the size of the bill and whether there is any legal requirement for the UK to pay anything.

The EU is now threatening the UK with court action if it tries to walk away without paying. It was also reported that EU officials are preparing for the UK to walk out without a trade deal. In a strategic move, it was reported that the European Central Bank is willing to fast-track banks’ exit from London if sought. Reportedly, the ECB may be prepared to waive the examination of financial models for banks that meet British regulatory standards.

Looking to the day ahead, we have the consumer confidence figures out later today.

USD: dollar continues to wobble

There’s been increased volatility in the dollar markets after a quiet period recently. This was despite a quiet day in terms of tier-one data releases.

The dollar continued to weaken against sterling. The most recent Bank of England vote on interest rates saw one member voting for a rate hike. Investors are now keen to see what impact the potential for higher-than-expected inflation will have on the currency pair.

US unemployment claims are due out today. No major dollar moves are anticipated as a result of these. However, Fed Chair Janet Yellen is expected to deliver a speech and this may move the dollar.

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