Does the latest FX research and data suggest the pound has peaked?
The pound has very recently touched fresh highs on GBPEUR of 1.1546 and GBPUSD of 1.2679. But since those highs this month, we have seen declines down to 1.1475 and 1.2457 respectively.
This begs the question, has the pound peaked?
Well, our research for a number of weeks has exposed potential sterling weakness. We highlighted the historical “Sell in May, go away” trend of sterling being weaker in May here. This strategy, had seen the pound weaker for the last six out of seven years.
Last week, the Bank of England linked future hikes to the data, Unemployment data yesterday showed a rise to 3.9%. This in theory gives less space for interest rate hikes and did see a weaker pound in yesterday’s trading.
Typically the raising and lowering of interest rates influences strength of currency. This is something I have written about previously.
When should I buy Euros with pounds?
Looking further ahead, the latest forecasts and research we had undertaken had suggested of 54 banks, only 9 believed GBPEUR would be above 1.14.
We do remain above this level currently, which demonstrates some positive arguments for Euro buyers holding pounds.
For the UK, there are still many economic challenges ahead. Whilst recession has been avoided prompting support for the pound, there remains a serious cost of living crisis.
According to data from the FCA, reported in the FT today, 3m more are struggling with loan repayments, compared to a year ago.
The UK’s economic picture remains fragile, particularly when compared to some of our European friends. Elon Musk’s targeting of France as a place to do business reflects the outcomes of such attitudes.
It is expected the Eurozone will raise interest rates at a faster and higher pace now than the UK, narrowing the interest rate differential across the channel.
Such a trend indicates a stronger Euro against the pound in theory and is important to note for Euro buyers holding pounds. It is this expectation that underpins many of the ‘stronger Euro’ forecasts we see.
Thank you for reading our posts and please get in touch if you would like to learn more regarding strategy and how we might assist with the planning and execution of your FX transactions.
Jonathan Watson
Telephone: +44 (0) 20 4506 5672
https://uk.linkedin.com/in/jonathan-watson-46591057
