Currency Note

Will sterling stabilise after Thursday’s surge?

By Smart Currency July 15th, 2016


Sterling surged by around two cents against the euro and US dollar on Thursday, lifting some of the malaise that has surrounded it since the 23rd June. It is unlikely that this means stability for the UK currency, however, as there is still a great deal of uncertainty surrounding the UK’s exit from the EU.

This may be a brief period of respite, but there is no telling how long it will last for. As the previous weeks have shown, surprises can upset currency markets – so if you have any upcoming international payments, call us today to see how you can minimise your risk and potential losses.

Sterling gains on certainty

Sterling has had a good week. It received a boost yesterday as the Bank of England (BoE) voted 8-1 in favour of keeping the UK interest rate on hold. Expectations had been for a cut. On Tuesday, Prime Ministerial hopeful Andrea Leadsom pulled out of the race to become the next Tory leader. This left the way clear for Theresa May to assume office unopposed. Sterling has soared to two-week highs as currency markets welcome the certainty.

A quiet day from the UK lies ahead in terms of data, with interest fixed on the US where inflation and retail sales data are set to be released. However, any political news concerning the UK’s upcoming ‘Brexit’ could move sterling markets as very high levels of uncertainty currently surround what happens next.

Inflation data due from Eurozone

Yesterday the euro took a hit against sterling as the expected rate cut from the Bank of England (BoE) never materialised, to much surprise. Over the week sterling has gained over 3 cents against the euro – the best few days for sterling since the 23rd.

Today there is Eurozone Consumer Price Index (CPI) data released in the morning. An indicator of inflation, this could have a significant effect on the euro. The month-on-month data is expected to come out worse than last months, while year-on-year data is expected to go out of the red, reaching 0.1%, having previously been at -0.1%. Any surprises – particularly the yearly data failing to reach a positive number – could affect euro markets.

Opportunity for US dollar gains?

US data was thin on the ground on Thursday but thankfully all three major pieces of data came out positive and hint at growing economic strength in the US. Producer Price Index (PPI) figures reached an annual high at 0.5% and this increase was also reflected in Core PPI figures of 0.4%. Unemployment claims contracted, showing that monetary policy in the US could lean towards a rate rise once again.

Despite this positive data, however, we did not see the US dollar gains that would usually materialise. Due to the UK’s decision to hold interest rates despite much expectation to the contrary, we saw sterling gain against the US dollar in the afternoon. It still seems that the UK is the focus of much investor attention particularly since much of the monetary policy in the UK is still to be decided.

On Friday, US Consumer Price Index (CPI) data is forecast to increase and Core Retail Sales are due to remain steady for the time being. With the UK’s interest rate decision out of the way, Friday presents the perfect opportunity for the US dollar to make the gains it should have made otherwise on Thursday.

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