Data released this morning confirmed UK GDP fell by 0.1% last month. Despite this, sterling has risen to a 15-month high against the dollar. Cable (GBPUSD) rates open this morning above the key 1.30 threshold. GBPEUR opens slightly softer following the growth data but is still within range of the 11-month high reached earlier this week.
Dollar rates have taken a big hit over the last 24 hours. Yesterday, US CPI (inflation) confirmed a drop in price growth to 4.8%, lower than expectations of 5%. A key signal that higher US interest rates are beginning to bring inflation to a manageable level.
It is now likely we could see another pause on interest rates at the next Federal Reserve meeting, following Friday’s weak non-farm payroll data and yesterday’s inflation reading.
Another cause for the dollars demise is a recent uptick in global risk appetite. The dollar is a ‘safe-haven’ currency and tends to gain value in times of economic distress as investors pull their funds from riskier assets to invest in dollar based investments.
Recent data confirms China’s economy is beginning to recover from the impact of the pandemic leading to a rise in investor risk appetite. Sterling can often benefit from a rise in risk appetite.
For sterling sellers, the pound remains poised as the strongest performing major currency this quarter which represents a great opportunity based on where the pound has traded in the last 12 months.
However, forecast data collated by Lumon from 54 different banks and financial institutions shows a clear bias for a weaker pound moving forward 3-6 months.
Please reach out for a consultation on how exchange rate fluctuations could affect your future purchases or payments.
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