Will the Pound drop now that the UK is in recession?

GBP USD Exchange Rate Plunges to Lowest Since September 2020

Much of the talk regarding the Pound’s value and the performance of the UK economy this month had been geared towards last week’s GDP release for Q4 of 2023.

It’s now official that the UK is a shallow recession, and there was a drop in the Pound’s value when the official figures were released as the drop in economic output in Q4 was higher than expected.

The markets had expected to see a -0.1% drop quarter-on-quarter, but the official reading came out at -0.3 confirming the recession and also a slightly deeper recession than expected.

Since last Thursday’s release the Pound has managed to claw back the losses and has begun the week in quite a strong fashion, with GBP/EUR back above 1.1700 and GBP/USD still trading comfortably above 1.26.

Personally, I think the Pound hasn’t been heavily impacted by the worse than expected GDP readings and official recession being confirmed as a rebound in the economy is expected.

The markets will be more focused on the more recent economic updates now as they could impact when the Bank of England will begin cutting interest rates.

Inflation data last week was lower than expected, putting pressure on the BoE to begin cutting rates sooner than later. Retails Sales last week also came out much high than expected which is perhaps why the Pound has recovered last Thursday’s losses so soon.

This week offer another insight into the UK economy’s heath as PMI readings will be released on Thursday. They will cover Services and Manufacturing data with Services being the key for the UK economy. Another reading above 50 is expected which demonstrates growth in the UK’s most important sector. The January reading was 54.3 and 54.4 is expected this time which will be positive for the UK economy and could give the Pound a boost if the reading is above this.

If you would like to discuss the Pound’s recent and potential movement moving forward, please feel free to get in touch with me directly on [email protected] and I will be happy to discuss your plans. We offer very competitive quotes and market insights.

Could the Pound be influenced by this week’s busy economic calendar?

After a fairly muted start to 2024 for GBP exchange rates, the outlook what which factors could influence the currency moving forward have become clear.

The Bank of England, European Central Bank and the Federal Reserve Bank in the US are all expected to begin cutting interest rates later this year. But the BoE differs in that the cuts are expected to begin later this year, and the number of cuts is expected to be slightly less.

This is due to the inflationary pressures within the UK remaining elevated compared to the UK’s peers.

Moving forward, data releases which show signs of inflationary pressures expanding or contracting along with the UK’s economic health could influence the BoE’s monetary policy changes and therefore the Pound’s value.

A busy week of economic data releases is due this week which could influence the Pounds value, especially if the data releases deviates from the market expectations.

Later today the Governor of the BoE, Andrew Bailey will be speaking at Loughborough University. He voted in favour of keeping rates on hold at the BoE’s last vote and as ever his choice of language when describing the economy will be closely followed.

Monthly wage data is due for release on Tuesday and Inflation data will be released on Wednesday in the form of CPI. UK GDP figures are due out on Thursday. Thursday’s release will determine whether the UK has dipped into recession or not so GBP exchange rates could come under pressure if the growth in Q4 of 2023 was lower than expected.

Retail Sales will then be released on Friday which is an economic update that can cause volatility for the Pound too.

Generally speaking, better than expected data released could push back the BoE’s plans to begin cutting rates and could see the Pound strengthen.

If you’re planning on making a currency transfer and would like to obtain quotes, market updates and opinions, please feel free to contact me directly on [email protected]

GBP exchange rates remain strong as interest rates remain at 15-year high

GBP AUD Consolidates with UK Employment Due

Last week the Bank of England voted to keep interest rates on hold for the 4th consecutive time. Whilst this was expected in the lead up to the decision, we have seen a change in the voting patterns of the 9-voting members.

The rate will remain at 5.25% and the vote was a 6-3 split. Interestingly one member of the BoE’s Monetary Policy Committee voted for a cut so could this be the start of a change of approach and could this impact GBP exchange rates moving forward?

For some time now, the expectation from financial markets is that the between the Bank of England, European Central Bank and the Federal Reserve Bank in the US, it will be the BoE that will keep interest rates at elevated levels for the longest.

Between now and the end of the year, cuts of 0.75% is expected from the BoE whereas for the ECB and the FED the predictions are for in excess of 1%. Any deviations from these expectations carry the possibility of influencing the underlying currencies, so keep an eye out for any changes to the current outlook.

Inflation data along with the economic health of each economy will be important for this outlook, and the voting patterns from the Central Banks along with commentary and speeches from key personnel within Central Banks can also cause market reactions. For example, just yesterday evening in a pre-recorded speech US Fed Reserve Chairman Jerome Powell suggested that the markets are pricing in too many cuts from the Fed this year.

The US Dollar has strengthened off the back of these comments.

Economic data releases this week are light which will give the markets time to digest last week’s updates.

If you would like to discuss an upcoming currency transfer, exchange rates and timings do feel free to get in touch with me (Joe) directly on [email protected] and I will be happy to offer opinions along with competitive exchange rates.

Sterling hangs in the balance ahead of Fed and BoE decisions

GBP USD Exchange Rate Rises Sharply Following Fed Rate Hike 

Sterling exchange rates hang in the balance ahead of today’s Federal Reserve FOMC meeting and tomorrow’s Bank of England Monetary policy meeting.

The pound has been one of the strongest performing currencies of 2024, mostly helped by the prospect of higher for longer interest rates in the UK vs the Eurozone and the US.

UK interest rates currently sit at 5.25% and there is an expectation for rates to be cut by 100 basis points by year end. Eurozone rates are expected to be cut from 4.5% to 3.2% with US rates expected to shift from 5.5% to 4%. This would leave UK rates almost 1% higher than the Eurozone and slightly higher than the US at 4.25%.

Interest rate expectations have driven the value of GBPEUR to a 4-month high and last week the rate was 0.4% off the 17-month high. However, a change in narrative by the BoE tomorrow could lead to sterling weakness. A prospect of earlier rate cuts could supply the most pain for sterling.

Federal Reserve Meeting

This evening’s FOMC meeting is expected to provide clarity over the future of interest rates in the US. The dollar has held its ground against sterling over the past couple of weeks and has strengthened against the euro since the turn of the year. USDEUR currently sit’s close to 6-week highs.

Markets are pricing in a 50% chance of an interest rate cut in March. A cut in interest rates would likely weaken the greenbacks footing and strengthen cable (GBPUSD) exchange rates.

No change in interest rates is expected this month, however, many will be looking to decipher the messaging from the Fed and whether that supports the prospect of cuts coming soon. Recent economic data from the US has been positive which provides the Fed plenty of scope in their decision.

The dollar accounts for 60% of globally exchanged currency and is the peg for many pairs meaning this evening’s announcement is likely to cause significant volatility.

For expert insight on the market, please reach out to me directly via [email protected].

Could this week’s economic updates push the Pound higher?

Looking over a 1-month chart for the Pound to Euro exchange rate, the Pound has gradually climbed in a consistent trend against the Euro.

There has been little volatility, but the GBP/EUR pair have climbed from 1.1500 up to 1.1725 in the space of 1-month, which is an almost 2% increase.

At last week’s European Central Bank (ECB) interest rate decision and statement afterwards ECB President Christine Lagarde opted not to push back against expectations of a rate cut in the first half of the year. The markets are pricing in a rate cut from the ECB as soon as April which is earlier than expectations for the Bank of England.

The Euro weakened because of the language used by Lagarde, and I think we can expect to see further price fluctuations for the GBP/EUR pair if the Bank of England offers indications to when they think rate cuts are likely to begin.

The Bank of England’s first monetary policy meeting of the year will take place on Thursday. At the time of writing the BoE is expected to cut interest rates by 100 basis points this year, whereas the ECB and the FED Reserve in the US are expected to cut rates by 150 basis points.

Sterling has strengthened as a result of this prediction, so any changes to this outlook could influence the Pounds value.

At the last meeting the voting pattern stood at 6 voted to hold with 6 voting to hike rates. If we begin to see a change in sentiment this could also be picked up by the markets and cause a reaction in the Pounds value.

The Pound has begun the week trading just 0.5cents from its annual high against the Euro, and around the highest levels against the US Dollar since late July.

If you would like to plan around Thursday’s key update, and discuss exchange rates with me directly you can email me on [email protected] and I will be happy to offer you some insight regarding your transfer.

GBPEUR hits 1.17 – will the pound continue to rise?

GBPEUR exchange rates rose to 4-month highs during yesterday’s session, hitting 1.17 on the interbank market. Sterling is trading 0.6% off the 52-week high against the euro, making now an opportune time for sterling sellers.

Sterling has remained resilient against the dollar, holding above the key threshold of 1.27. Cable (GBPUSD) rates are 0.7% off the 5-month high.

Services & Manufacturing data

Purchasing Managers Index (PMI) surveys senior executives within the manufacturing and services sectors. The data is collated in month; therefore, the reading gives a very accurate view of how certain sectors are fairing in the current economic climate.

The index varies between 0-100. A reading above 50 signals an expansion and a reading below 50 signals a contraction.

Later today we will see the release of PMI date from the Eurozone, UK, and US. There is an expectation that both the sectors are contracting in the Eurozone. A surprise expansion could provide support to the value of the single currency.

PMI service data from the UK will be watched carefully. The service sector accounts for 70% of UK economic output. Forecasts are suggesting an expansion at 53.2. A reading below 53.2 could spell bad news for the pound and halt its current trajectory.

Friday’s poor retail sales data supported the view of a pending UK recession. A struggling service sector could add fuel to recessionary speculation and worry the Bank of England ahead of their interest rate decision next week.

US PMI data is expected to show a slight rise in service activity to 51, any deviance here could cause volatility.

ECB Meeting

Following a busy day of economic data, markets will quickly re-focus their attention to tomorrow’s European Central Bank meeting. Currently there is no expectation of a rate cut, however, the press conference and statement following the meeting could set out the plan for future changes and therefore cause significant volatility on euro exchanges.

If you have an upcoming currency requirement that requires expert attention, please reach out to me directly via [email protected]

Will GBP exchange rates remain strong despite recession fears?

Last week saw the Pound to Euro break above the 1.1650 handle for the first time this year, after remaining rangebound between 1.1600 to 1.1650 since the start of 2024.

The GBP/EUR pair have begun the week above 1.1650 even if only just, so the trend for the pair is gently climbing despite there being concerns for the UK economy falling into recession.

Retail Sales figures for December were released last week and came out below expectations, increasing the chances of an official recession in the UK.

Although economic data this week is light, Wednesday’s release of PMI data will be followed closely by financial markets and especially the Services PMI figure.

PMI readings are a measure of the prevailing direction of economic trends, and it’s based on a monthly survey of supply chain managers.

On Wednesday there will be releases for Manufacturing, Industrial and the Services sector. The Services sector will be key as this sector covers around 70% of the UK economy. A release above 50 indicates growth in the sector, and the last reading was 53.4. A slight increase to 53.5 is expected this time.

The Pound could be influenced by this release, especially if the figure released is below expectations.

Thursday’s European Central Bank (ECB) interest rate decision and monetary policy statement could also have an impact on the GBP to EUR pair. No changes are expected to be made but the language used could offer insight into the ECB’s monetary policy plans through 2024.

The President of the ECB, Christine Lagarde recently suggested a cut could come as soon as the summer.

If you would like to discuss timings and exchange rates on a currency transfer you’re planning on making, please feel free to contact me with an outline of your plans. You can email me directly on [email protected] and I’ll be happy to offer my opinion and exchange rate examples.

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%.

For further information on the currency markets and insight on how events could affect your upcoming exchange, please reach out to me directly on [email protected]

Sterling weakens ahead of UK growth data

Central Bank Speeches

Sterling exchange rates are once again on the back foot following comments made by several monetary policy committee members. Earlier this week, chief economist Huw Pill suggested it was reasonable for the market to expect interest rate cuts from the middle of next year. Higher UK interest rates support the value of sterling by making the currency more attractive to overseas investment. A drop in interest rates would lead to a softer pound.

However, at a conference in Dublin held by the Central Bank of Ireland, Bailey took a more cautious approach and pushed back against the prospect of future rate cuts. He insisted that it was too soon to start talking about easing policy while inflation is higher than the 2% target.

Huw Pill will speak again today so the markets will be looking to digest any comments from him that further speculate on future policy.

European Central Bank president Christine Lagarde speaks later today regarding future EU policy. Like the BoE and Fed, the ECB decided to keep interest rates on hold at their last monetary policy meeting. A suggestion of higher-for-longer interest rates would likely support the value of the euro against its counterparts. The single currency recently gained more than 1.5% against the dollar following poor jobs data which reduced the expectation of further rate hikes in the US.

UK GDP data

Tomorrow morning will see the release of quarterly and yearly GDP (growth) data from the UK. Year-on-year growth is expected to post 0.5% of growth. However, on a quarterly basis the economy is expected to shrink -0.1%. Sterling would benefit from an uptick in growth vs the expectations but could weaken if the economy contracts.

The BoE have said there is a 50% chance of a UK recession. A negative growth reading would increase the probability of a recession and pile pressure on sterling exchange rates.

Please contact me on [email protected] for further information regarding the market and bank beating exchange rates.

Could a UK recession apply further downward pressure on the Pound?

Last week the Bank of England voted to keep interest rates on hold at 5.25% as expected by the markets.

Financial analysts now believe that the Bank of England has completed its current cycle of interest rate hikes with the attention now turning to how long the BoE will keep interest rates at the current elevated levels.

The Pound remained quite flat against the Euro as a result of the decision, but due to some US Dollar weakness the Pound to US Dollar rate actually climbed at the end of the week.

At the time of writing, GBP/EUR is trading at 1.1540 and GBP/USD has climbed up to 1.2400.

The voting pattern from the BoE monetary policy committee was clearer this time, as the decision to keep rates on hold was voted for by 6 members to 3 this time round. Previously, the vote was 5 to 4 so there appears to be a clearer direction regarding monetary policy now.

On Wednesday, the governor of the BoE, Andrew Bailey will be speaking and I would expect markets to follow his tone very closely to try and gauge the BoE’s plans moving forward. Comments alluding to when the BoE could begin to start cutting interest rates could impact the Pound’s value, and the current expectation is around Q3 of next year.

On Friday this week perhaps the key economic data release is due, as GDP figures are due for release. Both MoM (Month on Month) and QoQ (Quarterly) figures are due and with some analysts believing that the UK is about to enter a recession, these figures could also impact GBP exchange rates.

The quarterly figure is expected to be the key one here, with a contraction of 0.1% expected to be released.

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