Currency Note

Sterling finds new strength against euro

By Alex Bennett May 9th, 2023

Sterling has climbed to its strongest position against the euro this year, in a big week for the pound, with an interest rate decision on Thursday. It is similarly strong against the US dollar and 1% up on last Tuesday.

On the data front, investors will have plenty on their plates to digest between now and Friday, with several high-impact economic releases scheduled in. For pound watchers, the spotlight will be on UK inflation and GDP.

According to the Centre for Economics and Business Research, the Coronation weekend, with its extended pub opening hours on Sunday, provided an expected £104m to Britain’s economy. Researchers said that Sunday’s warmer weather may have been a key factor in helping to boost revenue for the hospitality sector.

Tomorrow, eurozone markets will see the latest industrial production data for Italy. In the last release, Italy’s industrial production fell by 0.2%, missing market expectations of a half a percent rise. Economists are predicting this week’s monthly figures to be a little less pessimistic.

The Spanish stock, IBEX 35, outperformed its eurozone peers yesterday, climbing by 0.7%. Banco Santander also gained 1.2% after launching a holding company which aimed to bring together its global insurers.

Across the pond, the US Federal Reserve’s (Fed’s) economist and member of the Board of Governors, Philip Jefferson, is due to deliver a speech at lunchtime today. This follows the Fed’s tenth interest rate hike last week, which brought US borrowing costs to their highest level in well over ten years.

US stocks remained under pressure with mixed results on Monday, ahead of Wednesday’s inflation data. The Dow Jones closed over 50 points lower yesterday, while the S&P 500 finished marginally higher. The Nasdaq also edged up gently—by around 0.2%.

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GBP: BoE interest rate decision on Thursday

The last of our three major central banks, the Bank of England (BoE), will decide on its interest rate this Thursday. Markets are expecting the BoE to hike rates by 25 basis points (bps) following a 25bps hike to 4.25% in March. All eyes will be on the pound in the run up to, and aftermath of, the BoE’s decision for any increased volatility.

GBP/USD past year

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EUR: Up next, German inflation

Euro watchers will see the latest inflation data from the fourth-largest economy in the world, Germany, on Wednesday. Final inflation is usually the least impacting of the three, however many will be watching closely as results in line with, or above, forecasts are likely to be good for the single currency.

The monthly and yearly rates are both expected to fall.

USA: Markets await inflation data

Tomorrow, monthly and yearly inflation will be released by the U.S. Bureau of Labor Statistics, with the yearly rate expected to ease gently to 4.9%. In the previous release, core inflation (excluding food and energy) rose gently from a 14-month low of 5.5%, to 5.6%, while yearly inflation fell to its lowest level since May 2021, to 5%.

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