Roller coaster day for the Pound

7 January, 2015

Tom Arnold

Yesterday was a bit of a roller coaster for the Pound, with plenty of movement both up and down following various releases and market openings around the world.

It started quite strong, with the GBPEUR rate for example, sitting only a cent below the 6 year highs we have recently posted, but soon gave ground following significantly lower than expected UK PMI figures in the morning. It then spent the remainder of the morning clawing back its losses before the US market opened, releasing its own rather poorer than anticipated PMI figures, which weakened the previously untouchable US Dollar, and caused something of a selloff, with investors seemingly opting for alternate positions including the rather unfashionable Euro, which gained back across the board, with the Pound finishing almost a cent lower than it started against the single currency.

This is likely a short term trend though, as the overriding trend of a strong Dollar, weak Euro and middling Pound is still likely to dominate. The reasons for this are firmly entrenched with the various central banks and their likely upcoming policies. The US is almost certainly going to start raising interest rates soonest, making it the most attractive investment and hence the strongest currency. The UK is likely going to be second in this race, making it the next most attractive, and the Eurozone rather than having such currency positive options is likely to be diluting its currency using Quantitative Easing to improve overall liquidity, making it unattractive for any investor. The Euro also has the spectre of the upcoming Greek election and the very real possibility of a Greek exit from the single currency to deal with, which is making it even more unattractive.

There are some variances to this train of thought though… Both the US and UK are under inflationary pressure, not high inflation but in fact low inflation, which does slightly hamper the chances of these interest rate rises in the immediate term. This has prompted some analysts to predict we might not see the rises this year, and with global economies definitely seeing a slow down this is becoming more of a possibility.

Today sees various data releases of note, with European unemployment and inflation figures out first thing and then the minutes from last month’s Federal Reserve policy meeting this evening. The European numbers will probably not have too much influence unless they are radically different from expectations, but the minutes from the Fed will be very critical as they might shed some light on the chances of those US interest rate rises. As ever stay in close touch with your CI account manager to be informed of exactly what is happening and how it is likely to affect your upcoming currency purchase.