Sterling Slide Continues

18 March, 2015

Simon Eastman

Following last week’s speech by Mark Carney where he mentioned a strong pound will weigh heavily on a UK recovery, as it will impact low inflation and therefore impact the chances of interest rates rising, the pound has been on a steady decline.

With a lack on UK ecostats yesterday, it was left to data releases from elsewhere to guide the way for trading and with Mark Carney’s words in investors’ minds it was always going to be a tough day for sterling.

We saw EU inflation figures released first, mainly coming out as expected apart from the core month on month figure was slightly better than expected. This was coupled with EU and German ZEW economic statement both of which beat the expected with the German coming out at 55.1 compared to 50 and the EU stat coming out at 62.4 compared to 58.9. These paved the way for the euro to fight back and it continued to make gains against sterling gaining a cent and a half across the day. With the ever strengthening US dollar still striving on, the single currency remained fairly range bound throughout the day, gaining slightly in the morning but losing the gains following the open of the US markets and the release of better than expected building permit figures.

So on to Wednesday and as some cope with the hangover from St Patricks day celebrations, the focus is back firmly with the UK. We have an early ECB meeting at 8am but then we switch to the UK with the release of the Bank of England minutes, unemployment and average earnings data. Then after lunch its over to Westminster where George Osborne delivers what could be his final budget report.

From what we have seen, it seems investors are less concerned with the results of the budget and more focused on events later this evening when we go across the pond and to the Federal Reserve’s Janet Yellen. The US have their monthly Fed interest rate decision, economic projections and policy statement plus press conference. The figures come out at 6pm whilst the press conference starts at 6.30pm so expect some evening volatility on the markets. We could come in to some very different rates on Thursday should any hints or changes to interest rate expectation be announced so if you have a US dollar requirement it might be prudent to speak with one of the team today, rather than wait just in case!

The US markets, as we have seen of late, can have a massive effect on the euro and sterling markets also. The US dollar and the euro are on opposite sides of a currency see-saw, where dollar strength has led the way for a weaker euro. The pound has to some extent been riding on the dollars coat tails in its drive against the euro, which has been noticeably overcooked (given the recent correction). So if comments tonight are less positive for the US, we could see the euro make gains and the pound lose further ground against the single currency. Sterling has been mis-performing against most of the major currencies recently so if you have any purchase to make with sterling it might be prudent to jump in sooner rather than later whilst rates are relatively good.

Finally late evening we have key data from New Zealand as they release their GDP figures and their antipodean neighbours Australia release the RBA monthly bulletin and foreign exchange transaction statement.