Finally Some Action

15 June, 2018

Tom Arnold

Over recent weeks the currency markets have been fairly static, with the three majors – Sterling, Euro and Dollar – largely trading within quite tight ranges against each other, while the markets wait to see how various major political and economic situations play out. Would the Italian’s fail to make a meaningful government? Would the UK Tory party lose critical Brexit votes in Parliament? Would President Trump further upset world trade relationships or just focus on North Korea?

While we still wait for definitive answers to many of these questions, Thursday finally brought some swings on the exchange rate side of things. First thing in the morning, UK retail sales came out above expectations – 1.3% month on month and 3.9% year on year, versus expectations of 0.5% and 2.4%. This significant improvement caused a bit of a jump in Sterling strength – around 0.25% against both the Euro and Dollar.

Next up at lunchtime we had the monthly policy decision and statement from the ECB. Expectations had been for no change to interest rates or the QE program, and this proved to be the case, but in the following press conference, Mario Draghi surprised the markets with his stance on interest rates – suggesting that interest rates would remain held until the summer of 2019. With the FED and BOE both raising rates, there had been an expectation that European rates would follow suit, but with this clear indication this would not be the case, the Euro took a significant tumble against both the Pound and Dollar. Against the Pound, the loss was around 1%, but against the Dollar, the Euro lost over 2 cents.

This was further exacerbated in the afternoon when US retail sales also came out above expectations – 0.8% versus an expectation of just 0.4%. This caused the Dollar to make further gains against the Euro and also push back against the Pound too.

Today sees European CPI inflation numbers this morning, followed by some US industrial production numbers this afternoon.

With the Pound enjoying improved rates against the Euro, but with a backdrop of ongoing Brexit uncertainty, it seems likely this is a great buying opportunity for those with Pounds in hand. Get in touch with your CI account manager to discuss your options and remember, even if you do not need your currency for some time, we can still look to secure the rate now using a forward contract, so you don’t miss out on this opportunity.