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Will the Bank of England help or hinder sterling exchange rates?

By
Richard Nugent
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GBP EUR Rallies After Bank of England Rise in Interest Rates

Will the Bank of England help or hinder sterling exchange rates?

Last night the US federal reserve raised interest rates by 25-basis points against a backdrop of financial instability in the US banking sector. US interest rates are now at the highest since 2007. At the start of the week many had expected the Fed to hold rates at their March meeting. The SVB banking failure caused concern throughout the sector and further interest rate rises could inflict more pain on troubled banks.

Cable (GBPUSD) benefitted following the Fed’s announcement and immediately rose to 7-week highs presenting a great opportunity for dollar buyers. EURUSD also rose to a 7-week high amidst the expectation that there will be no further rate hikes from the Fed. Some commentators are expecting the Fed to start cutting interest rates in the latter half of 2023 which is piling pressure on the dollar.

The Fed’s dovish statement is positive for sterling and future exchange rates against the dollar and other dollar-based currencies; however, a lot will depend on the tone of the Bank of England this afternoon. The BoE have their March meeting and expectations are for interest rates to rise by 25-basis points.

GBPEUR has begun to lose value in the lead up to this meeting and is trading close to 2-week lows as of this morning. This could be a window of opportunity for euro sellers.

If the bank takes a similar dovish tone to the Fed, then we could see further pressure on the pound. UK inflation is still extremely elevated at 10.4% which suggests the banks previous hikes have not yet had the intended impact. Future interest rate rises may be needed in the UK to bring inflation under control and markets will be looking for any suggestion on this from the bank.

Tomorrow morning is packed with significant economic data releases. PMI data from the UK, Eurozone, and US along with UK retail sales and US durable goods orders.

If you want to be kept up to date with developments and achieve market-leading exchange rates please contact me directly on [email protected].

Sterling exchange rates climb in the lead up to tomorrow’s Spring Budget

By
Joe Wright
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Sterling saw gains yesterday to start the week and this trend has continued this morning, with GBP/EUR almost reaching 1.1400 earlier today.

A break above 1.1400 would be a 2-week high and interestingly the GBP/EUR pair have found resistance the last 3-times this level was tested.

Despite tomorrow’s Spring Budget expected to be far less eventful than the Spring Budget last year, the financial markets are still cautious of the impact the Budget can have on financial markets so it’s worth being aware that the Budget takes place tomorrow.

Back in Autumn of 2022, the fiscally lavish roll out of plans by the Chancellor of the Exchequer Kwasi Kwarteng under a Liz Truss conservative government had a dramatic impact on GBP exchange rates.

The Pound fell to the lowest level against the US Dollar in roughly 35 years at the time, and dropped to an annual low of 1.0800 against the Euro.

Jeremy Hunt is now Chancellor after being appointed by Truss to replace Kwarteng last year, and Rishi Sunak opted to keep him in the role after he brought calm to the markets when appointed. Tomorrow he’s expected to announce plans for 12 new investment zones in the UK’s most budding industries and generally play it safe after the fall out from the last Budget.

Despite these expectations, GBP has strengthened in the lead up to the budget so it will be interesting to see if there’s a response to any unforeseen announcements tomorrow.

Aside from the Spring Budget economic data this week is light. On Friday the Consumer Inflation Expectations are due for release at 9.30am but apart from this economic data is light.

If you would like to discuss an upcoming currency exchange involving the Pound, or any other major currency pairs please feel free to register your interest with me (Joe) on [email protected]

I will be happy to provide quotes and insight into any upcoming data announcements that could impact your plans, and also discuss the numerous contract offers our brokerage provides our clients.

Sterling under pressure against the euro and dollar – will the pound weaken further?

By
Richard Nugent
-

Sterling under pressure against the euro and dollar – will the pound weaken further?

Sterling exchange rates have once again come under pressure following comments from Fed chairman Jerome Powell and Bank of England member Catherine Mann regarding future interest rate policy.

GBPEUR is trading within range of the 5-month low, which makes now an opportune time for euro sellers. A transfer of €100,000 is buying £3500 more vs the 5-month high for GBPEUR. Cable (GBPUSD) has also clawed back and is very close to the 2-month low. A transfer of £100,000 is buying $6000 less than the 2-month high.

At Lumon we have access to several tools that can help private clients and businesses navigate the volatile market and protect against currency risk. If you have an upcoming exchange involving the pound or any currency please reach out to me directly on [email protected] to set up a no obligation chat.

Several readings of key US economic data have been stronger than expected in recent weeks, the most notable being Non-farm payrolls which came in higher than 500K vs expectations in the 200K range. The strong data has handed the Fed further ammunition to continue raising interest rates.

Powell believes the Fed need to do more to cool down the US economy and reduce inflation and therefore may need to raise interest rates higher than expected. Non-farm payrolls for February is released tomorrow and expectations are for 203K. A higher than expected reading here will likely boost the dollar and weigh on sterling.

Sterling’s position and future prospects have been weakened by comments from the BoE. Catherine Mann said on Tuesday that we should expect further downward pressure for the pound if the markets had not ‘priced in’ the hawkish tone from the Fed and ECB. The ECB are also expected to continue raising rates in the coming months which has supported the euro against the pound.

The next BoE meeting is March 23rd, the pound may come under more pressure if the Bank confirm the end to their current rate hike cycle.

Sterling exchange rates remain under pressure despite upbeat data releases

By
Joe Wright
-

During yesterday’s trading session the GBP/USD exchange rate dropped below the key 1.20 handle, even if only for a brief moment but it’s a sign of the Pound coming under pressure regardless.

The Pound has also lost some ground against the Euro and after spending some time trading in the 1.13’s and testing 1.14, the pair are now firmly in the 1.12’s despite some better-than-expected economic data releases out of the UK.

There has been a lot of talk and media headlines warning of a recession within the UK owing to an economic slowdown coupled with increasing inflation levels and interest rates creating a cost-of-living crisis.

During yesterday’s economic releases there were some encouraging signs for the UK economy though, as the construction sector reported a strong rebound in fortunes. Activity within the building sector is measured by the CIPS Construction Purchasing Managers Index (CPI) and during February growth was reported, as the figure released was above 50. The fastest level of growth was reported in 9-months which for now will ease concerns of a long-lasting recession.

Car sales also jumped by 26% is another positive economic release, but despite these positive data releases the Pound remained downbeat and slowly weakened throughout the day’s trading session, breaking below 1.2000 against the US Dollar as previously mentioned.

This morning Halifax has reported that UK house prices grew by 1.1% during February which could calm concerns of a property market correction.

I have previously touched on how UK property prices can impact consumer spending habits so signs of stability within the property market are a positive for the UK moving forward. Once again though, this data has done little to boost the Pound which could be a sign of further weakness to come for GBP exchange rates.

Looking forward, Friday could be busy for GBP exchange rates as UK GDP figures will be released along with Industrial and Manufacturing data. Do feel free to get in touch if you wish to plan around this release.

You can contact me (Joe) directly on [email protected] if you wish to obtain a quote for an upcoming currency transfer you plan on making. We can also set up rate alerts and offer an overview regarding upcoming economic data releases which could impact currency markets.

Sterling loses positive gains – will the pound continue to weaken?

By
Richard Nugent
-

Sterling loses positive gains – will the pound continue to weaken?

Sterling exchange rates plummeted during yesterday’s trading session as negative sentiment surrounding the UK’s economy continues to weigh on the currency. Less than 24 hours prior, the pound was trading at 4-week highs against the single currency.

The pound had been boosted by the announcement that the UK and EU had reached a deal over trading arrangements in Northern Ireland known as the Windsor framework. Since the Brexit vote in 2016 the pound has lost considerable value against the euro and dollar. Sterling has often gained value when agreements have been reached with the EU, perhaps unsurprisingly given that the bloc is by far the UK’s biggest trading partner.

The Windsor framework is positive for the outlook of trade in Northern Ireland and therefore positive for the UK and the pound, however, the deal needs to be ratified in Westminster and may face criticism from back-bench tory MP’s and the DUP amongst other unionist parties in Northern Ireland.

Positive flash PMI data released on 21st February is another development that has recently improved the outlook for the pound. The data suggested that both the manufacturing and services industries are performing far better than expectation with the UK services sector expanding.

Does this mean the UK could avoid a recession in 2023?

The final reading for services PMI data is released tomorrow morning. If the data is strong once again then we could see a boost for the pound. Strong PMI data is not conducive to a recession so if this data continues to improve the UK may avoid a recession in 2023. UK GDP figures are next released on 31st March and will confirm how the economy is fairing.

Sterling remains under pressure despite the recent positivity for the UK and is trading within range of the 5-month low against the euro and within range of the monthly low against the dollar.

PMI data released from the UK and EU tomorrow could be a driver for rates moving forward. Later this morning there is a key release of Eurozone inflation data. A stronger than expected reading could further strengthen the euro against the pound.

If you have any upcoming requirement involving any currency, and wish to speak with a specialist, please feel free to reach out directly on [email protected].

Will the Pound continue to fall against the Euro & the US Dollar?

By
Joe Wright
-

Sterling begun the week in a subdued fashion and traded within a very thin range throughout yesterday’s trading session.

There was little economic data released pertaining to the UK economy outside of housing data, which showed that property prices rose by just £14 between January and February which is the smallest increase reported by Rightmove since the property website begun recording property prices.

Throughout the day GBP/EUR barely broke a trading range of 25 pips, and this morning this trend of thin ranges has continued although there are some releases later this morning which could potentially impact GBP/EUR rates.

UK Services and Manufacturing PMI data will be released at 9.30am this morning and both are expected to show further contractions in the sectors. A figure below 50 demonstrates a contraction within the sector, and the expectation this morning is for Manufacturing to show 46.8 and for Services to show a figure of 48.3. These sectors collectively cover close to 90% of the UK economy so markets are likely to follow these readings closely.

The trend since the start of 2023 has generally been a declining Pound when we compare it to other major currency pairs such as the US Dollar and the Euro.

In December GBP/EUR was trading close to 1.1700 and now the pair are just over 1.1250, and trading within thin ranges as mentioned earlier within this blog.

The US economy is stronger than many had expected it to be and the European Central Bank (ECB) begun hiking interest rates at a later date than the Bank of England (BoE) and this has put pressure on the Pound against both currencies.

How the UK economy performs, and the approach by the BoE is likely to drive GBP values moving forwards. If you wish to be updated regarding GBP exchange rate changes do feel free to register your interest with me.

You can email me directly on [email protected] to register your interest in receiving market updates, and we can also provide you with competitive quotes if you’re planning on making a currency exchange involving most major currency pairs.

Sterling softens following fall in UK inflation – where will the pound go next?

By
Richard Nugent
-
Pound to Euro Gains After Weaker German Retail Sales

Sterling softens following fall in UK inflation – where will the pound go next?

UK inflation data released yesterday morning caused a large scale sell-off of the pound. GBPEUR had climbed to two-week highs prior to the announcement and cable was back trading in the 1.21 handle. However, both pairings are trading more than a cent lower at the open this morning.

Inflation figures revealed a fall in both CPI (Consumer Price Index) and core CPI data. The headline figure fell from 10.5% to 10.1% vs expectations of 10.3%. While the core number reduced from 6.3% to 5.8% vs expectations of 6.2%.

What does this mean for Sterling’s value?

The better than expected fall in inflation will provide relief to the Bank of England that their current rate hike cycle is starting to have an impact on inflation. The bank have been raising interest rates for more than a year now to combat rampant inflation that remains close to a 40-year high.

If inflation was higher or equal to expectations then Andrew Bailey and the other MPC (monetary policy committee) members would have been under pressure to continue the current rate hike cycle.

The fall in inflation may cause a shift in the Banks current policy which would be negative for the pound. Strong retail sales data yesterday from the US has opened the door for further hikes in the US. Interest rates are likely to continue to rise in both the US and Eurozone which will boost the value of their currencies and weigh on the value of the pound.

Chief economist for the BoE Huw Pill is speaking later today and markets will look for any information given regarding future policy. Retail sales data is released in the morning and the expectation is for an improvement from last month reading of -1% to -0.3%.

If you have any upcoming requirement involving any currency, and wish to speak with a specialist, please feel free to reach out directly on [email protected]

Sterling continues to climb but will this week’s data releases reverse this trend?

By
Joe Wright
-

Sterling has managed to climb back above the 1.1300 trade level against the Euro and so far this week, it’s managed to remain above this level thanks to some better than expected data released this morning.

The GBP/EUR rate fell below 1.1150 earlier this month when the Bank of England hiked interest rates as expected to a base rate of 4%, but provided a dovish commentary in the minutes afterwards which put pressure on the Pound’s value.

Sterling has recovered against the Euro, and the US Dollar to a certain extent but there are some key economic updates due for release this week which could undermine the current trend if the figures don’t meet expectations.

Earlier this morning data releases revealed that UK wages are growing, but not at the same rate of inflation levels. The Pound climbed though as the figure released beat expectations.

UK wages are growing at 6.7% and this is above the expectation of 6.5% which eases some of the pressure on the BoE regarding monetary policy.

Perhaps the key data release this week will be January’s inflation data which will be released tomorrow morning. We’re expecting to see a third consecutive fall which will ease inflationary pressures. The issue for the UK though is inflation levels remain in the double digits whereas inflation levels within the US and the Eurozone have now dropped below 10%.

The data is expected to show a drop from 10.5% to 10.2% so the easing of inflation pressures in the UK economy is gradual which is a concern for some economists. Any major deviations from the expected figures could impact GBP exchange rates so it’s worth following this data release.

If you would like to discuss an upcoming currency transfer you plan on making involving the Pound, or any other major currency pair for that matter, do feel free to get in touch.

You can contact me (Joe) directly on [email protected] and I’ll be happy to offer competitive quotes and discuss your options with you.

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

By
Richard Nugent
-

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.

Sterling exchange rates are the biggest loser after last week’s interest rate changes

By
Joe Wright
-
GBP EUR Holds Gains After House Price Data 

Although recovering to a certain extent from the multi-month lows seen late last week, the Pound appears to be now trading within new trading ranges after last week’s interest rate increase from the BoE (Bank of England).

In regards to the GBP/EUR exchange rate, it has been trading between 1.1300 and 1.1400 in the lead up to BoE monetary policy updates for good few weeks but now that the announcements have taken place we’re seeing new ranges.

At the time of writing GBP/EUR is trading just above the 1.1200 handle within a very thin range of around 20 pips so far today.

This shows a slight recovery from the multi-month lows of 1.1137 that we saw late last week, but it’s also a sign that GBP has lost between 1 to 2 cents after the interest rate hike last week and forward guidance given last week.

The decision to hike rates for the 10th consecutive time , this time by 0.5% as expected is perhaps not the reason for the fall. It was most likely the dovish commentary afterwards. If inflationary pressures subside due to weak economic activity and the BoE no longer continue to hike interest rates in a bullish fashion, the Pound could become weaker.

On a more positive note for the Pound, and the UK economy this morning it’s been reported by Halifax that UK property prices remained flat within January. This stems a consistent fall after they had dropped for 4-months in a row until last month.

Annually there was a 1.9% increase which was the lowest increase in the past 3-years.

Property prices within the UK can be a good indicator of economic health as a buoyant market often boosts retail sales due to increasing wealth of the nation. A drop in property prices can see a knock on effect which tends to be more heightened within the UK than other nations studies have shown.

On Thursday this week the BoE’s Monetary Policy Report Hearings is due to be released at 9.45am which could have a knock on effect to the Pounds value depending on the outcome so that’s worth being aware of.

There is also a raft of economic updates such as GDP, Industrial Production and Manufacturing Production figures due for release early in the morning. If you wish to plan around these releases due feel free to get in touch.

You can contact me (Joe) directly on [email protected] and I will be happy to offer insights. We can also set up rate alerts, and most importantly offer competitive quotes for any prospective clients that wish to discuss an upcoming currency exchange they’re planning on making.

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