Stable Sterling Not for long

17 October, 2016

Tom Arnold

Last week was all in all quite a quiet one, with an almost complete absence of UK data, leaving the other main economic zones to provide all of the potential ammunition for currency movements. This had led many market analysts to fear that an unsupported Pound might be vulnerable to attack from the other majors, but in the end the week was a fairly innocuous one for Sterling with a completely flat trading week against the Euro and only minor losses to the US Dollar.

This stability for the Pound is nothing to write home about though, with Sterling at record lows against many currencies – 31 years against the Dollar and 5 years against the Euro. The backdrop of Brexit is still dominating all forecasts for the UK economy and hence the Pound, and so expectations are for continued volatility and the pressure is most definitely still weighing very heavily on Sterling with Prime Minister May still pushing for a “hard Brexit”.

There is also the spectre of potential further action from the Bank of England, with another interest rate cut widely tipped. (Higher interest rates generally lead to currency strength, and lower rates to currency weakness.) This could also be compounded for Dollar buyers by expectations of an interest rate rise in the US before Christmas.

The week ahead is a busy one and this time around the UK economy contributes plenty of critical data:

European CPI inflation
US industrial production

Australian RBA policy meeting minutes
UK CPI inflation
UK RPI/PPI inflation
US CPI inflation

UK unemployment
European construction output

Australian unemployment
German PPI inflation
UK retail sales
ECB policy meeting + statement
US jobless claims

UK public sector net borrowing
European consumer confidence

Many eyes will be on the ECB policy statement on Thursday to see if Mario Draghi and his team do cut back their QE program as has recently been hinted at. If they do, we could see a surge of Euro strength, and if any of the UK data fails to impress the Pound’s flirtation with stability could be over before it has even really begun.

As ever make sure you stay in close contact with your Currency Index account manager to be kept informed of exactly what is happening and what your options are for your upcoming currency requirement.