Will the pound continue to rise in December?

Pound to Dollar Rate Pares Losses

The pound has recently touched fresh highs against both the Euro and US dollar, begging the question will the pound continue to rise in December? Financial markets had become slightly more buoyant in recent weeks leading to sterling bouncing back from the October lows.

If we cast our minds back to October and the Liz Truss and Kwasi Kwarteng ‘mini-budget’ fiasco, sterling has made a incredible recovery. We have moved near 20 cents higher on GBPUSD, from 1.03 to 1.22, and on GBPEUR near 10 cents, from 1.07 to 1.17.

In percentage terms this is a 19% move on GBPUSD and 9.3% on GBPEUR, truly remarkable shifts in two months. Whilst there is no ‘typical’ or guaranteed set of movements in the currency markets, more common movements across these pairings might be a few cents or low single digit percentages over such a period.

The figures above are definitely not in line with usual high to low movement on GBPUSD and GBPEUR currency pairings in two months, and reminds us how unpredictable and volatile the currency markets can be.

The shift in rates and sentiment has definitely stemmed from renewed confidence the UK will not be embarking on the potentially dangerous economic plans eschewed by Liz Truss, but it is also down to more global factors.

The US dollar has been a major factor and in weakening dramatically across the board against most other currencies, it has amplified the movements higher for sterling, in supporting a rise on GBPUSD. The US is appearing less likely to raise interest rates at quite the same pace as predicted, leading to the greenback retreating from its advances.

As the weaker dollar has dragged sterling higher, it has pulled the pound up against other currencies like the Euro. The key question is will this rally continue and actually if we look at the more recent movements this week and last, there could be signs that this recovery is stalling and struggling to break higher.

The Bank of England meet next Thursday and will discuss and outline their latest Interest Rate decision, where the potential for an interest rate hike could be supportive for the pound. However, whilst it is likely the BoE will raise interest rates, we do sometimes refer to these moments as ‘priced in’ where investors are already factoring said outcome in.

What might be more interesting is assessing what the pace of hikes or not will be for 2023, as investors try to gauge the potential for a further move higher, or not, for the pound next year.

December can be a tricky month for predictions  in the currency market with many bank holidays and thinner liquidity over those days, with increased potential for higher volatility because of these conditions.

If you are considering an exchange this side of Christmas, or looking to understand some strategy and insight for 2023, we can provide guidance and share the latest market commentary to help your decision making.

We also have a range of options to help with the timing and execution of your FX transactions, to help manage your exposure to risk and capture any volatility that is in your favour.

Thank you for reading and please contact me to learn more.

Jonathan

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