What’s in store for Sterling in 2024?

The begin to the year for sterling exchange rates has been a mixed bag. The pound is slightly stronger vs the euro in 2024 but has lost some value against the dollar over the first week’s trading.

Forecast data collated by Lumon from around 50 big banks and institutions, Nomura, BNP, Standard Chartered to name a few, currently suggests that we could see a weaker pound moving forward into 2024.

There is a clear bias for the pound weakening against both the dollar and euro in the next 1-3 months. A lot of the negativity for the UK is centred around the potential for a recession this year. Last month, quarterly GDP (growth) data confirmed the UK economy shrank by 0.1%. Two consecutive quarters of negative growth would confirm a technical recession and could pile pressure on the pound.

What’s in store this week?

UK services data will be released shortly, and it is expected to confirm an-uptick in activity for the services sector in December. The services sector is key to the UK economy so positive data will be good news for the pound.

German inflation data will be confirmed later this afternoon ahead of the Eurozone release tomorrow morning. EU inflation is expected to rise from 2.4% to 3%. An up-tick in inflation may affect the ECB’s future policy on interest rates. They are expected to cut interest rates later this year, however, sticky inflation may mean they keep rates higher for longer. This could strengthen the euros position against the pound.

German inflation data will be confirmed later this afternoon ahead of the Eurozone release tomorrow morning. EU inflation is expected to rise from 2.4% to 3%. An up-tick in inflation may affect the ECB’s future policy on interest rates. They are expected to cut interest rates later this year, however, sticky inflation may mean they keep rates higher for longer. This could strengthen the euros position against the pound.

Monthly non-farm payroll data will be released in the US tomorrow. This measures the number of new jobs created in the US outside of the farming sector and has the tendency to be a big market mover.

Elsewhere, there is unemployment data from Canada where it is expected to rise from 5.8% to 5.9%.

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