Currency Note

Sterling ends the week on a high

By Christopher Nye March 17th, 2023

Sterling is a top-performing currency this month

Economists have had a busy week with lots of interesting data and economic news to digest.

Sterling ends the week stronger than the euro and US dollar compared to this time last Friday, with gains of approximately 1.10% and 1.73% respectively.

While the euro gained approximately 0.55% against the pound ahead of the European Central Bank’s interest rate decision on Thursday, it quickly lost these gains.

Following the chancellor’s Budget on Wednesday, the UK government announced that it plans to spend billions to boost the country’s labour supply. It will do this via tax breaks on pensions as well as expanding free childcare.

On Thursday, British retailer, John Lewis announced it is to scrap staff bonuses for the second time. The company also signalled job cuts are in the pipeline after a worse-than-expected £230m full-year loss.

However, it was Credit Suisse who took the limelight this week as its turmoil caused turbulence in the stock markets. As well as European and UK stocks taking a blow, Canadian stocks fell to a three-month low on Thursday. The S&P/TSX Composite index fell 0.8% hitting 19,250 following the potential sale of the First Republic Bank and recent vulnerability of Credit Suisse.

The bank (Credit Suisse) has since been given a lifeline from the Swiss Central Bank, but investors will be keeping their eyes peeled for any further developments.

In the eurozone, ECB policymakers raised interest rates by 50 basis points as expected on Thursday. The decision raised interest rates to 3.5% in an attempt to cool the region’s stubbornly high inflation and pushed borrowing costs in the eurozone to their highest level since late 2008.

In its statement the ECB said, “inflation is projected to remain too high for too long,” the Bank added that, “the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, in line with its determination to ensure the timely return of inflation to the 2% medium-term target.”

Across the pond, US inflation came in slightly below expectations this week, with core inflation easing (to 5.5%) for a fifth consecutive month in February.

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GBP: Sterling unaffected by banking turmoil

The pound remains strong against its euro and US dollar rivals despite the widespread impact of the banking turmoil in the US and Eurozone.

With little to no economic data to digest before next Wednesday, many now look ahead to next week for the country’s inflation rate.

Also next week, the Bank of England is due to hike interest rates by 25 bps. In the Budget on Wednesday, Jeremy Hunt set a target to halve inflation by the end of the year.

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EUR: Interest rate raised to 14-year high

The European Central Bank raised interest rate by 50 bps on Wednesday, meeting economists’ expectations. The rate is currently at 3.5% but remains higher than the ECB’s target rate of 2%.

Ahead of the news, the euro gained 0.5% against sterling but has since lost those gains. The euro is currently trading 1.2% lower than it was this time last week, but is up 4.3% since this time last year.

USD: Positive Wall Street movement

Following a sour open on Thursday, Wall Street recovered with the Dow Jones erasing an over 200-point decline which pushed the stock into positive territory for a moment.

This boost is believed to have been influenced by comments made by treasury secretary, Janet Yellen who said the US banking system “remains sound”.

Next week, investors will be looking to the US Federal Reserve for its interest rate decision.

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