Sterling hits September high vs the Euro

GBP

Last week, we witnessed the release of numerous readings of economic data across the UK, having significant impact on the strength of the British pound.  On Tuesday, we experienced data release of the average earnings. A slow rise in the average earnings was recorded, but regarded promising for the strength of the pound as it takes pressure off the Bank of England- the central bank- by easing inflationary pressure. In theory, this should slow down inflation which may open the door to an earlier interest rate cut, which could influence a weakening the strength of the pound.

On Friday, the release of the retail sales data read a negative -4.3% from last month, 3.2% worse than expected. This data measures monthly rate of change of sales by retailers in the UK, followed as an indicator for consumer spending. In this case, the data leads us to believe that individuals in the economy have less disposable income, suggesting performance in the economy is poor. In order to combat poor performance, the BOE may consider an earlier cut in the interest rates. This would attract investors as borrowing rates are lower, in attempt to influence a boost in the economy. However, this may look to weaken the British pound. 

On Friday, we await the release of consumer confidence data. This is an index that measures consumer confidence in the economy. A positive reading dictates expansion in the economy, whereas a poor reading suggest otherwise. This data shows a broad calculation, meaning consumers may be benefitting from increased wages, lower price levels and other aspects of the economy. The pound may strengthen if the data reads positive, as a growing economy reflects increases in demands for the currency. Once again, a disappointing reading may suggest otherwise.

EUR

it was a quiet week for the Eurozone in terms of data release. We heard from the European central bank’s president Lagarde on Wednesday, Thursday and Friday. Several members of the central bank have attempted to dampen speculation of an earlier rate cut, as markets are pushing a prediction of an 85% probability of a cut in April. Lagarde hinted in various speeches that it is too early to cut rates, pointing towards a summer rate cut instead. Eyes were on Lagarde’s words as the currency market has already priced in that the central banks will leave the rate unchanged for the upcoming decision. This may be positive for the euro as rate-cut bets are looking to be postponed- the euro could remain strong. However, during the course of this week, we will look to consider following data readings and how these may impact the timeline of the ECB’s rate decision. The markets may remain volatile as businesses are warning about a technical recession, furthermore potential early cut to the rates. 

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Tom Holian tom.holian@lumonpay.com