The Pound traded within a very tight range last week, as currency markets have begun the year in quite a muted fashion.
There was a range of just 115 pips for the GBP to EUR exchange rate, and the EUR to USD exchange rate traded within a range of just 80 pips. The EUR to USD exchange rate is the world’s most traded currency pair so this demonstrates how quiet markets were last week.
Throughout much of the week the markets were awaiting the November GDP figures as there are concerns that the UK economy could slip into recession. In Q3 of 2023 the UK economy shrunk, and in October the economy also shrunk by 0.3%. The November reading was higher than expected, with Friday’s release showing growth of 0.3% so all eyes will be in the December figure.
For an official recession to take place, there needs to be two consecutive quarters of contraction within the economy so it’s all coming down to the December figure. There could be a knock-on effect to the Pound’s value if there are concerns about the economy, especially with the Pound trading towards the top end of its annual ranges against both the Euro and the US Dollar.
Another topic that could impact the Pounds value remains interest rates and when the central banks are expected to begin cutting interest rates.
As it stands, the BoE is expected to begin making amendments to its current 15-year high interest rate in the 2nd half of 2024. Initially the markets priced in changes for early 2025 but the expectations have been brough forward. A total of 125 basis points are expected to be cut throughout 2024, so expect any amendments to this amount to potentially impact the Pounds value.
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