This week ahead – Are 2023’s Sterling high’s set to continue?

For the first time in 2023, we saw the Pound breach the 1.16 ceiling against the euro last week. On the 1st of June 2023 we saw a new a 2023 high reached for GBPEUR of 1.1667 with sterling managing to maintain a mid-market level of above 1.16 for the remainder of the week. The Pound saw similar rises against several currencies, most notably the Australian and New Zealand Dollar, respectively climbing to both 2- and 3-year highs.

Analysts have raised their bets on further rate hikes by the Bank of England in coming months, with the terminal interest rate for the UK now expected to rise to 5.50% by the end of this year.  A further 0.25% hike has been nailed on for June at 90% by the market after UK inflation levels remained elevated at 8.7, a far cry from the Bank of England’s target level of 2%. Current levels are 0.5% higher than the Banks expectation of 8.2% where inflation should be.  The continued interest rate rises have backed by Chancellor of the Exchequer Jeremy Hunt, stating recently that ‘even if they risk plunging the UK into recession, in order to combat soaring inflation’.

This comes in contrast to the Eurozone where inflation figures have undershot expectations with core inflation falling to 5.3%, a figure lower than the 5.5% forecasted by economists. The expectation of further rate hikes by the ECB has now decreased on the release of this data. Poor GDP figures released from Germany; a powerhouse economy of the bloc further dampened the mood earlier this week for the Euro. The expectations of a recession in Germany are now high, along with a 6-month low against the Pound, the euro is near a 3-month low versus the Dollar.

Global risk appetite over the last couple weeks has been diminishing for the US Dollar after concerns in the market that the US government would default on its debt. The borrowing limit was forecasted to be hit on the 5th of June until US congress approved a deal to lift the world’s largest economies borrowing limit on Wednesday. The Pound gained 2 cents on the Dollar over the course of last week with potential extended setbacks after Friday’s confusing jobs report out of the US. The odds of a June rate hike remain low after Friday’s report provided the Federal Reserve sufficient reasoning to pause on raising interest. The non – farm payroll report came in 159k better than the expected 180k with a figure of 339k, a continued rise after last month’s 294k. This figure provided some confusion with unemployment in the US rising to 3.7%, 0.3% up from last month and wages coming in softer. This potential weakness in the job market could hold the FED back at June’s monetary policy meeting.

The Pound is being favoured by both strategists at UBS and Credit Suisse, two of Europe’s largest banks after the Bank of England demonstrates a stronger commitment to fighting elevated inflation compared to it’s G10 counterparts.

Several data releases to look out for this week. Monday being the data heavy day for the Eurozone and US. Monday morning, we have the services and composite PMI releases for the eurozone, France, Italy & Spain. Monday afternoon we see the US ISM services PMI data released. Only the one data release for the UK with the S&P Global composite PMI released in the morning.

On Tuesday and Thursday retail sales data and GDP data is released for the Eurozone, providing a clear indicator of inflation levels for the bloc.

For the US this week we have the trade balance figures and initial job claims data on Wednesday and Thursday.

Any deviation from the expectation from the data releases can cause potential volatility and movement within exchange rates, if you have any questions, speak to one of our experts here and we will be happy to discuss any upcoming exchange with you.

Sterling Stronger as UK Inflation Remains High

Pound to Dollar Rate Drops to One-month Low

Pound reaches fresh highs against the Euro

UK Inflation data this morning showed a drop to 8.7% but this is still higher than previous Bank of England forecasts.

This leaves the door open to future interest hikes, which in principal could lead to a stronger pound.

The pound was also in the headlines again yesterday as the Bank of England faced criticism.

In terms of where interest rates are headed, the governor Andrew Bailey spoke. “I think we are nearer the peak than we were”, was his commentary in relation to how much further hikes might go.

In acknowledgement of the Banks failure to control inflation, Bailey conceded “very big lessons” were there to be learned.

The news was not all bad in yesterday’s trading. The pound rose also rose higher yesterday as the IMF confirmed the UK is no longer headed for recession.

Why has the pound been strengthening this year?

Sterling has been empowered in recent weeks as the UK shrugs off the worst forecasts.

At the turn of the year, all eyes were on a long and drawn-out recession. This has continued to look less and less likely as the year goes on.

Our latest forecasts had thrown doubt on the potential for the pound to rise higher ahead. These forecasts are now coming under pressure as further good news emerges.

Whilst government borrowing has increased in the latest figures, the rise in projected economic growth and avoidance of recession is naturally seen as a plus.

When we consider that Germany could well be headed for recession, and the US economy is also not clearly out of the woods, the pound could be looking in good shape from an investors point of view.

When is the best time to buy Euros with pounds?

Looking to the data, our latest research had indicated of 54 banks; 45 predicted the pound will be lower. Precisely, they predicted the GBPEUR level would be below 1.14 in the coming months.

Considering GBPEUR levels have reached fresh six-month highs in May, now could be a good time to lock in your rate.

Clients buying £100,000 worth of Euros are today getting an extra €4,000 compared to the lows of February.

As mentioned, our research in assessing the predictions of all the major banks indicted a much tougher time than the pound is currently experiencing.

Market sentiment is providing a boost for Euro buyers with pounds but this might not last.

There is an argument to say therefore, that given the recent movements, and the fact that market expectations predict a lower pound, now is a good time to buy.

Will the US dollar weaken on the US debt ceiling talks?

Markets have been here many time before and only a handful of times have they failed to agree a deal before the deadline.

If the government runs out of money, and they fail to make payments then we could in principal see the US dollar weaker. With so many US dollar denominated assets globally investors might become fearful.

We might also flip this around and argue that the US dollar would actually strengthen since as a safe haven currency, the US dollar will rise in times of uncertainty

Investors will be keenly monitoring the outcome here, with the familiar talk of the reliability of the US dollar as a leading global currency and how justified that label is also likely to gain column inches.

For more information on the latest GBPEUR and GBPUSD forecasts, please contact me to learn more.

Jonathan

[email protected]

Will the Pound strengthen this week?

The Pound reached multi-week highs last week after Chancellor Jeremy Hunt did his best at calming the markets with his Spring Budget release on Wednesday.

The capturing headline that the UK will not enter a technical recession this year’, as well as expectation of growth in the years afterwards, boosted the Pound heading into what could also be a volatile week.

The Bank of England will announce the next steps forward in terms of interest rates on Thursday, as the Monetary Policy Committee meet. Catherine Mann, one of the more hawkish members of the MPC, said recently that interest rates will need to rise again to prevent inflation becoming a persistent problem in the UK. This could be the eleventh successive rate hike since December 2021 and, with interest rates currently sitting at 4%, there is an expectation that the Bank will hike by a further 25 basis points.

Inflation remains in double digits still with the last reading displaying at 10.1%. This figure has only fallen 1% in the past 5 months and the Bank’s target level is 2%. Will we see a further hike this week and, in turn, another boost to the Pound’s value?

The Bank also had it’s say on the emergency sale of Credit Suisse to UBS, as the UK has managed so far to avoid being drawn into recent bank failures. This recent crisis has seen two major US banks fold, as well as Credit Suisse. This caused a slight shock to the market as Credit Suisse is considered as one of the top 30 largest banks in the world and large enough to affect the global markets. The BoE said “The UK banking system is well capitalised and funded, and remains safe and sound.”

The European Central Bank also did not hesitate to push forward with their interest rate hike last week despite the chaos in Switzerland. The EPC pushed their interest rates to 3.5% after another 50 basis point hike on Thursday.

After two major bank collapsed in the US over the past couple of weeks, there will be plenty of eyes on the Federal Reserve’s interest rate decision on Wednesday too. As well as the EPC, the Fed are expected to hike their rates from 4.75% to 5%, the highest of these 3 central banks. The US dollar has benefited from it’s safe haven status over the past year, so the rhetoric from the Federal Open Market Committee this week will be key to the value of the greenback moving forward.

Should you have a large currency exchange to carry out and you would like to speak to us for a comparison or a discussion about where the market may head next feel free to email me directly [email protected] I look forward to speaking with you.

Pound starts to recover against the Euro

GBP EUR Exchange Rate: The Week Ahead June 26th 

The pound managed a surprising recovery during the week to the 10th February, against the Euro the pound managed to climb 1 ¾ cents from the week opening to the week close (1.1160- 1.1330). Against the Dollar the pound managed to claw back a similar amount with the week high topping out just under the 1.22 handle.

As previously mentioned in these reports, the week prior saw a heavyweight clash from the 3 central banks, where the doubt was cast over the future of the Bank of England’s rate hiking cycle.

It appears the bank are in their ‘sunset’ phase with one more 25 basis point rise heavily tipped in next months meeting. Thus causing the pound to weaken.

Looking ahead the Chancellor Jeremy Hunt is due to present his Spring Budget on the 15th March, he has given assurances to the market he will not be pulling any rabbits from the hat next month given the need to reduce inflation.

A point worth noting is the Banks meeting is not until the week after (23rd) last time after the Truss/Kwarteng saga the bank were forced to act on emergency bailout measures to put a floor under Sterling.

Friday saw the latest round of GDP numbers out for the UK. Gross Domestic Product (GDP) is the a monetary measure of the value of all goods and services produced by a country in a specific timeframe. It is one of the key indicators of Economic growth.

December’s reading came out at 0.5% which was deeper than the forecasted 0.3%. On Friday the reading came out that the economy grew 0% in the final quarter of the year, meaning the UK avoided a technical recession by the smallest of margins.

Remember for an official recession, there needs to be two consecutive quarters of negative growth.

Nevertheless, 0% growth is not something to shout about, the data only highlights what many market analysts have mentioned around the difficulty the UK economic is expected to face in 2023. GDP in 2022 increased by 4% in the UK, down sharply from the 7.6% increase in 2021.

The pounds gains throughout the week were down to an unwinding in last week’s sharp selloff where the pound was ‘shorted’ across the money markets.

In addition, a slight shift in global investor sentiment after softer US data and communication from the Federal reserve members.

The Euro trended lower throughout the week as support for the single currency was dented by economic data.

Retail sales in the euro zone fell by 2.7% in December, lower than the 2.5% forecast. This is the biggest decline since April 2021.

On Tuesday German industrial production came in at -3.1% another heavy blow for the Euro. However, some more positive inflation data came out on Thursday as inflation dipped to 9.2% in January. Down from the 9.6% recorded in December.

This has also raised fears that the European Central Bank (ECB) may need to alter their recent hawkish tone around rate hikes.

The Eurozone has benefitted heavily from falling gas prices, with prices falling around 85% from the highs recorded in August amid lower demands thanks to a above average winter temperature across the bloc. Out look across the Eurozone has improved vastly from 3 months ago when the situation looked a lot more difficult than now.

Analysts on wall street feel the bloc is far from being in the clear as they predict a shallow recession will materialise later this year. Eyes will be focused on how economic data records in the coming months, any weakness could cap the Euros upside potential.

This upside potential and greater outlook for the Euro has been remarkable, at the start of November EUR/USD was trading around 0.97.

Today EUR/USD is trading around the 1.07 handle but has peaked as high as 1.10 at the start of this month.

As EUR/USD is the largest traded pair globally it can often suffer at the hands of booming US data releases such as the latest round of Non farm Payroll data where the Euro lost 1.5 cent on the days trading due to the positive data set.

The dollar wavered through the past week where it was intermittently bolstered by a shifting market mood.

Concerns over the Chinese Spy balloon caused initial support for the safe haven dollar on Monday.

The support didn’t last long as the Federal Reserve chair Jerome Powell gave a Dovish speech.

Powell avoided any clear indications on the banks forward planning with just one short statement on the matter, ‘ the disinflationary process, the process of getting inflation down, has begun’.

Wednesday saw a rally for the greenback after hawkish comments from Fed governor Lisa Cook who said that ‘the bank are determined to bring inflation down to target, I think we are not done with raising interest rates’.

US employment data remained historically low on Thursday, further supporting the dollar.

Global market sentiment deteriorated towards the end of the week with the Dow Jones (0.17%) and Nasdaq 100 (2.47%) both down and the FTSE falling by 0.24%.

The markets haver again began to realign themselves to what the federal reserve are planning to do with rates.

There are some suggestions traders are starting to price out US rate cuts by the end of the year following the strong Nonfarm data.

Keep a close eye on US CPI data this week, it is estimated to clock in at 6.2% down from the previous 6.5%. Any variation could cause volatility on the currency markets.

Market data this week-

UK

Mon- Average Earnings data, claimant count and unemployment rate

Tues – CPI data & Retail price index

Fri- Retail sales

Eurozone 

Tues GDP Q4

Weds Industrial production.

US

Tues- CPI data

Weds- Retail sales

Thurs- Building permits, Initial jobless claims, Philadelphia Fed manufacturing Survey

For further information or a free quote reach out to me directly Tom Holian [email protected]

Sterling improves following NIESR report – where will the pound go next?

Sterling improves following NIESR report – where will the pound go next?

The pound enjoyed a more positive session yesterday following the release of the NIESR’s (National Institute of economic and social research) economic forecast for the UK in 2023. Their research contradicts the predictions that have come from the Bank of England for a lengthy recession and forecasts that the UK will avoid a technical recession in 2023.

Sterling was buoyed by the news which moved GBPEUR to a 7-day high, raising the rate from the 4-month low of 1.1135 seen on Friday afternoon. Cable (GBPUSD) also showed signs of improvement following a tough start to the week.

The dollar gained ground across the board following the Federal reserve’s interest rate decision on Wednesday with many expecting the Fed to begin ending their current rate hike cycle, however, positive jobs (non-farm payroll) data released on Friday has increased the probability of US interest rates moving higher than expectations. A strong reading of US CPI data next Tuesday will fuel the expectations of further rises and could support the greenback in the near-term.

A transfer of £200,000 is buying €2800 more vs the low last week, which may present a window of opportunity for sterling sellers that expect the negative rhetoric surrounding the UK to continue moving forward.

Economic data is light from the UK today, however, at 09:45, governor of the Bank Andrew Bailey and chief economist Huw Pill will be questioned by parliaments treasury select committee. MP’s will ask ‘is the Bank of England behind the curve on inflation?’ and what further measures will they take in order to combat the current economic crisis. Comments surrounding the economic outlook and future interest rate policy could provide volatility for sterling exchange rates.

Tomorrow morning is key for UK economic data with GDP, industrial production and manufacturing production all being released at 7am. The GDP reading could be a significant driver for sterling exchange rates moving forward. A negative reading would support the BoE’s forecast for a recession where a positive reading would support the NIESR’s report.

If you have an upcoming currency requirement and would like to be kept up to date with developments, please feel free to contact me directly on [email protected].

We have several tools available at Lumon that can help minimise your currency risk.

Monetary policy meetings and interest rate hikes – Will the Pound weaken further this week?

The week ahead will be a major one for the Pound, Euro and US Dollar will all three respective central banks announcing further developments in their battle to reduce inflation back to target levels, through their monetary policy meetings this week. Monetary policy meetings and decisions on interest rates help us to understand the current health of the economy, which is the main influence on a currency’s value and, any adverse movement away from the expectation within the market, may result in volatile movement.

The Pound lost ground last week temporarily last week off the back of weak goods price and economic output data, both underwhelming expectations, but the main contributing factor against the Euro were the hawkish announcements from several European Central Bank members, leading to this week’s meeting. ECB members Joachim Nagel, Gabriel Makhlouf and Boštjan Vasle all agreed last week that the central bank will need to raise interest rates at this meeting, and meetings after that in order to bring inflation back down to the target level of 2%.

The latest reading of inflation was measured at 9.2% in January, down from 10.1% in December, but the reason for such a sudden drop was some member government’s intervention on energy prices, helping reduce such an impact over the winter months. Core inflation within the bloc continues to grow and the President of the ECB, Christine Lagarde, was also assured of upcoming interest rate hikes as the answer in her most recent speech last week. “We have made it clear that ECB interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive, and stay at those levels for as long as necessary,” Lagarde said. The ECB, and Lagarde specifically, have a reputation for being more dovish than other central banks but, if these comments are reflected in this week’s meeting, then we can expect a more bullish and positive approach moving forward.

The Bank of England are expected to have more of a cautious tone as they navigate their best route of bringing inflation back to target levels. The Consumer Price Index readings, in other words inflation levels, have steadily begun to drop over the past few months, from 11.1% in November to 10.5% in January. This will put less pressure on the central bank to raise interest rates largely at this meeting, or act more aggressively with future decisions, as their target is gradually being achieved.

Governor of the BoE, Andrew Bailey, recently discussed the generalised prediction within the market of peak interest rates at 6%, and commented that they were way too high. With the current bank rate sitting at 3.5%, expectation in the market is that the peak will now sit nearer to 4.5% in the months to come. Bailey did also, however, discuss the potential upcoming recession, predicted as the longest recession in 100 years by the Bank itself, and did so in a more positive light: “It has unfortunately got the characteristic of being long, but shallow. I would say that energy prices have come down so that ought to be a positive.

We have lower gas and oil prices and that will help to alleviate that real income shock somewhat. The market interest rate curve has come down, the exchange rate has strengthened a bit which will help a bit in terms of its pass through to inflation. So, there are those contributing factors and we will have to do the analysis over the next couple of weeks (next monetary report) to see what we turn those into.” 2 out of 9 members of the BoE voted for the interest rates to remain unchanged at the last meeting in December, so could we see more members begin to follow suit in fear of a recession on the horizon, or will the Bank’s comments provide support to the Pound instead as inflation continues to drop?

The US dollar has benefitted from the most aggressive policy tightening path in four decades in the US, as well as risk on sentiment within the global economy in 2022, and is now beginning to lose footing against a basket of major currencies in recent weeks. Cable rose 6 cents in January, with Euro also gaining 5 cents against the greenback within that timeframe, as the Federal Reserve head towards their monetary policy meeting on the first day of February. After two 75 and one 50 basis point hikes in recent months, there are speculations within the market of a more modest rate hike to give inflation time to decrease as monetary policy lags behind, and not drive the economy into an unnecessary recession in moving too aggressively.

CPI readings in the US peaked at 9.1% in July and have dropped to 6.5% in the most recent announcement, which displays the effect the quickened pace of interest rate hikes may have had on the market. Jerome Powell, Chair of the Federal Reserve, stood firm on the central bank’s policy for 2023, however, in a speech to kick off the year. “…restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy. The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors.”

Will the dollar gain back its recent losses? Can the Euro continue on its more positive start to 2023?

Key dates this week:

Mon – German GDP figures
Tues – German Retail sales & CPI figures, Eurozone GDP
Wed – Eurozone CPI, US Manufacturing PMI & Fed interest rate decision
Thurs – ECB and BoE interest rate decisions
Fri – Nonfarm payrolls US

Please get in touch with us here at Lumon if you wish to discuss this week’s economic information or should you have a transaction to carry out and you would like to get a free, no obligation quote to see if you could save money by switching to us.

A simple email to [email protected] and we will be in touch swiftly.

Sterling rallies after UK inflation stays high – Will the pound gain strength this week?

The Pound rallied and saw some gains in the recent week finishing at 1.1423 against the Euro and 1.2392 against the Dollar. The pound strengthened after the UK labour market data on Tuesday displayed a new record high for UK wages showing the UK is nowhere near finished with high inflation thus putting pressure on the Bank of England (BoE) to raise the interest rate by 50 basis points.

This upswing in the Pound continued after Wednesday showing a smaller than expected decrease in inflation for the UK, the year-on-year Consumer Prices Index stood at 10.5% in December down from 10.7% in November. This small decrease in inflation was driven by falling fuel prices, however, there were upside pressures from restaurants, food, hotels and non-alcoholic beverages.

These circumstances led to the core CPI inflation reading year on year for December as 6.3%, a level unchanged from November. This core inflation is much higher than the Bank of England target 2.0% rate which may force the BoE to continue aggressively increasing interest rates, indicating a 50-basis point hike in February. This continuation of high inflationary pressure opens up the possibility of further interest rate hikes moving forward.

However, it’s not just the UK where an aggressive interest rate strategy appears to be set to continue. European Central Bank (ECB) president Christine Legarde has stayed steadfast in her hawkish stance on interest rates. Legarde commented on Thursday at a panel discussion during the World Economic Forum: “We shall stay the course until…we can return inflation we can return inflation to 2 per cent in a timely manner”. She also commented that financial markets should “revise their position” that the ECB would slow down its interest rate hikes in response to signs that inflation has peaked in the Eurozone.

In an interview on Sunday ECB board member Klaas Knot backed this aggressive approach stating, “Expect us to raise rates by 0.5% in February and March and expect us to not be done by then and that more steps will follow in May and June”.

The Federal Reserve (Fed) on the other hand is poised to slow the pace of their interest rate hikes for the second straight time in February, as economic data indicates US inflation is finally decelerating with inflation being announced at 6.5% this month, a 12-month low.

However due to the US labour market remaining very tight with unemployment at a 50-year low, questions remain over when the fed will stop increasing interest rates. On Thursday it was signalled that the Fed would continue to raise interest rates with Lael Brainard the vice-chair of the Fed signalling that the US has more to do to get inflation closer to its 2% target. She commented “Inflation is high, and it will take time and resolve to get it back down to 2 per cent. We are determined to stay the course”.

She further stated the fed will have “very, very extensive discussions” over the next interest rate rise on February the 1st which looks set to be either a 25 or 50 basis point rise. Most officials in the US have signalled their support for a shift down to a 25-basis point rise in contrast to expectations for a 50-basis point rise for the BoE and ECB.

In the week ahead data comes out for the US, Eurozone and US that gives indications on the strength of each economy. But the 1st and 2nd of February is where the focus is, not just for what the interest rate decisions of the three central banks will be, but also the tone and remarks of the Fed, BoE and ECB and whether each central banks aggressive interest rate strategies will continue and to what extent.

Will the Pound continue its gains against the Euro and the Dollar based on interest rate expectations? Or will the markets change their tact based on upcoming data and continuing remarks from members of the three central banks?

Key dates this week 

US 
Thursday – Durable Goods Orders – Indicates the state of US production activity.
Thursday – Gross Domestic Product Annualized – indicates the pace at which the US economy is growing or contracting.
Thursday – Nondefense Capital goods orders ex Aircraft – indicates state of US production activity.

UK 
Tuesday – Services PMI – indication of the economic situation of the UK services sector. Any reading above 50 signals expansion and any reading below 50 signals contraction.

Eurozone
Monday – ECB president Legarde speech – Her comments can affect the strength of the Euro.
Tuesday – Global composite PMI – Indication of the Eurozone’s economic situation. Any reading above 50 signals an improvement on the previous month and any reading below 50 signals contraction.

If you have any questions or wish to discuss how we can help with your currency requirements, please email me [email protected].

Could UK Inflation Data Influence GBP Exchange Rates This Week?

The Pound begun the week in an uneventful fashion after trading within thin ranges throughout Monday’s trading session.

The Pound to Euro exchange rate remains quite rangebound at the moment, mostly trading between 1.1250 to 1.1300 with no signs of a breakout from this range at the moment. This morning is a good example of this trading pattern, with the pair hitting exactly 1.1250 before rising slightly.

Jobs data released this morning has done little to influence GBP exchange rates although perhaps tomorrows inflation data could have a greater market impact. In the early hours this morning UK labour market data showed that the unemployment rate remains unchanged at 3.7%. Job vacancies declined slightly, although it remains at a historically high 1.16m. Despite there being a high number of job vacancies, the drop in vacancies shows the jobs market is easing. Pay growth on the other hand showed signs of climbing and this may put pressure on the Bank of England to continue to hike interest rates.

Looking forward, tomorrow mornings Inflation data for the month of December will be followed closely for clues regarding the Bank of England’s monetary policy moving forward. The BoE has hiked interest rates at their last nine opportunities, and further hikes are expected. The inflation data tomorrow is expected to show a slight drop on the previous figure, although it is expected to remains in the double digits which is well above the BoE’s target. Inflation figures are likely to continue to drive the BoE’s monetary policy and this can impact the Pounds value so this release is worth monitoring tomorrow morning. Do register your interest with us if you wish to be notified regarding any major changes in the Pound’s value.

Aside from the Bank of England’s monetary policy, UK property prices could also influence the Pound’s value this year. A drop in prices is expected, and the UK economy can be heavily influenced by property prices due to the wealth of Brits generally shrinking.

If you’re planning on making a currency exchange involving the Pound and would like to discuss exchange rates along with market insights, please feel free to register your interest with me (Joe) on [email protected]

We can also set up rate alerts and offer a number of currency exchange contracts which may help you make the most of your currency transfer.

What will 2023 Bring For Sterling Exchange Rates?

Sterling exchange rates have dropped on the whole throughout 2022 and it is fair to say there are a number of quite obvious reasons behind the poor performance of the pound over the course of the year.

Here is a summary of GBP paired against a selection of major currencies and the movement since 1st Jan 2022 as an example.

GBP/USD -10.79%

GBP/EUR -4.97%

GBP/CAD -5.44%

GBP/AUD -4.69%

GBP/CHF -9.97%

All in all, the above suggests the pound indeed had a torrid time of it, most notably shortly after Liz Truss became Prime Minister and we saw a mini budget announced from then Chancellor Kwasi Kwarteng which ultimately cost him his job, but also knocked the pound for six, dropping to a 1985 low against the Dollar at one point.

We in fact had three Prime Ministers and four Finance ministers over the year, not a recipe for certainty and stability.

On top of this, the Bank of England have been fairly slow to act on raising interest rates in comparison to other Central Banks around the world, we are still yet to see if this move will pay off now that inflation is expected to start to come down, however what that has done is led to a flow of money out of the pound and into more rewarding currencies, such as the USD where the Federal Reserve have been aggressive in their interest rate hikes, thus making their currency more attractive to investors looking for a great return.

What will 2023 bring?

There is no getting away from the fact that 2023 will be a tough year for many and that the UK will likely be in recession for most if not the whole year, however it is also important to remember that the UK is not alone with this problem.

Equally the same can be said for inflation issues, cost of living, energy prices and the prospect of Covid poking its nose back into daily life more aggressively once again, virtually the whole world has these issues, the key will really be how they are dealt with and who can bounce back the quickest.

I would hope that this year the UK can avoid the political turmoil seen over a number of months in 2022, political certainty is one of the key drivers for the performance of a currency and there is absolutely no doubt the circus act that played out earlier in the year from Boris to Liz to Kwasi with many smaller parts played as well will have done nothing but hurt the pound and I still don’t believe it has truly recovered internationally because of this.

Investors however do seem to feel that Sunak and Hunt are a safer pair of hands, so should they avoid any drama in the coming year this should settle the pound a little and I believe this would give Sterling exchange rates the chance of a better year.

In terms of the economic issues that we are facing I would be a fool to say there won’t be moments throughout 2023 that will cause nerves for investors and speculators when it comes to the Pound.

We clearly will have a squeeze on everything, the person on the street already has less in their pocket and that seems like it may only continue, this will in turn hit retailers and could cause a domino effect on the UK’s economic performance as a whole.

Many may not have felt the interest rate squeeze on their mortgage yet but there will be a lot of renewals coming up in 2023 which could cause further issues for households and house prices as a whole are expected to come down.

Bills on the whole for everyone are going up whether it is heating your home, filling up your car or getting your weekly shop everything is becoming tougher and there are many in the UK that are struggling already, so I feel the first few months of 2023 could continue to be a tough period for sterling exchange rates, as it is unlikely consumers will be flying out of the traps to spend in early 2023 if anything it could be time to batten down the hatches and to get to Spring.

From Spring onwards it wouldn’t surprise me to see people out spending again, if only a little. Heating will be going off, that British attitude of keep calm and carry on will likely play its part and I would hope that 6 months of political stability might start to draw investors back in.

Despite the challenges the UK faces as a whole there is a huge amount going for it. During and after the last big recession in 2008 the UK bounced back considerably well and outpaced all other members of the G7, so it does show that historically the UK can bounce back and bounce back well, so this will all being well give investors confidence to look to the pound, especially whilst it is what could be deemed undervalued and it would not surprise me to start seeing investors position themselves for a Sterling recovery later in the year.

Morgan Stanley recently published that they believe the pound would be in their top ten surprises of 2023 and expect Sterling strength, you can find many other economists arguing the opposite but I tend to agree with Morgan Stanley on this one.

My expectations are of a fairly bleak and challenging winter further pushing the pound only to see a recovery as the year progress, albeit it is really hard to know for sure what is around the corner in the currency markets, this is where I feel things could pan out for the pound in 2023.

Currency exchange to carry out in 2023?

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Negative growth puts further pressure on the pound

GBP to EUR Forecast: Will Sterling See Further Losses Against the Euro?

Negative growth puts further pressure on the pound

The pound has had a negative start to the week losing ground against the euro, dollar, and a basket of other major currencies. The Bank of England’s latest interest rate hike did little to support the value of the pound. Sterling lost value against the euro and dollar almost immediately after the banks statement, a week ago today. Downward pressure on the pound was further fueled by the European Central Bank’s decision to raise rates by 50-basis points an hour later.

Towards the end of last week’s data heavy session, we saw the release of services and manufacturing PMI data from the UK. The UK data was a mixed bag with positive news that the services industry is no longer contracting; however, the manufacturing data was worse than expected coming in at 44.7 vs expectations of 48.5.

Retail sales data didn’t paint a pretty picture for the UK either. Month-on-month sales are down -0.4% worse than expectations of -0.3%. Year-on-year sales are down -5.9% vs expectations of -5.6%.

This week’s session has been less data heavy but the negative sentiment surrounding the pound has continued to push exchange rates lower. Growth figures released earlier this morning show UK GDP shrunk in the last quarter by -0.3% vs expectations of -0.2%. The data supports the forecast that the UK economy will fall into a technical recession early next year.

Year-on-year GDP is positive but lower than expectations of 2.4% coming in at 1.9%. The negative data has pushed the pound lower against the euro and is now trading within range of the 2-month low.

For clients looking to sell euros and buy sterling, the rate reversal may pose a window of opportunity. €100,000 is buying £2200 more vs the low of the last 2-months.

We have several tools available at Lumon to help you minimise currency risk, via market orders, forward contracts and rate alerts.

If you have an upcoming currency requirement and would like to be kept informed of developments, please feel free to contact me directly on [email protected].

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Where interbank exchange rates are referenced within the website these should only be used as a guide on the performance of a market. These rates are not indicative of our exchange rates – please contact us for a quote.