A week of struggle for the Pound

19 May, 2017

Tom Arnold

As we arrive at the end of the week, we look back for the first time in some months on a week of real struggle for the Pound. There were two big data releases of note this week, which were UK inflation numbers on Tuesday and unemployment figures on Wednesday.

Inflation jumped in April from 2.3% the month before to 2.7%. This was not unexpected following comments last week from the Bank of England which set out that inflation expectations were higher largely due to the weakening of Sterling since the Brexit referendum last year – a weakening Pound means it is more expensive to import goods, making them more expensive to sell on our high streets and hence driving up inflation. Normally higher inflation is Sterling positive because the main method the BoE use to control rising inflation is raising interest rates, but in this instance the support did not come for the Pound because the BoE suggested that inflation is not on a charge and will settle around these levels and start to come down as Brexit negotiations continue.

Unemployment data on the face of it was quite positive with the overall unemployment rate actually dropping from 4.7% the month before to 4.6%. But further analysis showed that average wages came in below expectations and as such with inflation rising, the costs in the shops going up, but the wages of shoppers dropping – the outlook for the UK economy is suddenly more concerning. Retail sales figures released yesterday showed a small rise in the volumes of goods bought on our high streets, but this is following a period of contraction and has largely been put down to good weather rather than keen shoppers!

All of these figures together have heaped pressure on the Pound. Against the Euro, which is the strongest of the majors at present following the French election and German local elections, the Pound is 2-3 cents down. The only good thing is the stronger Euro and a stuttering President Trump have heaped even more weight on the US Dollar, and so even the Pound is more than holding its own against the Greenback, rising to the best rates since September last year.

The day ahead is a quiet one on the markets with European current account data and a consumer confidence survey, German Producer Price Index and a couple of low key US releases. So we can expect a day driven by trends which could mean trouble for Euro buyers.

Make sure to stay in close contact with your CI account manager to be kept informed of exactly what is happening and how we can help you to secure your currency and the most opportune moment.