The pound lost a good chunk of value to both the euro and the US dollar during last week’s trading. This was primarily caused by the impression that the Bank of England (BoE) would look to cut interest rates soon and complete three rounds of cuts in 2024.
GBP/EUR fell by a cent on Thursday and, while it clawed some of that back on Friday, ended the week almost 0.5% down. Sterling lost over 1% to the US dollar last week and the dollar also advanced on the euro by two thirds of a per cent.
With all the movement, you might have though the Bank had already slashed borrowing costs. They have not done so yet and the rate remains at 5.25%. However, governor Andrew Bailey made some happier comments last week, praising the progress that the UK economy had made on inflation.
Markets seem convinced that the BoE will beat the European Central Bank (ECB) and the Federal Reserve to the loosening lever. Sterling shed value to the euro even while ECB president Christine Lagarde reaffirmed her stance that the first round of cuts would arrive in June.
Currency markets are not always reliable in their predictions. In fact, they’ve changed their minds so many times about who would be the first to cut interest rates (as well as the timing of those cuts) that it’s enough to make your head spin.
The simple fact is that markets are too complex to ever say with complete certainty that something will happen. There’s still a way to go until rates will be lowered and the road ahead is dotted with all the usual banana skins, so as ever, our advice is to ensure you are adequately protected against currency volatility. It could well make all the difference to your next transaction.
Here’s what to look out for this week…
Christine Lagarde will again be in the spotlight today with a speech, before the German Gfk consumer confidence study and US durable goods orders arrive tomorrow.
We’ll get the final numbers for Q4 2023 UK GDP on Thursday, as well as the equivalent read for the US.
Easter means a shorter week for many European countries, but do remember Good Friday and Easter Monday are not public holidays for some of Europe and in the USA. Friday features French and Italian inflation, while Monday brings US ISM manufacturing PMI. It’s possible, perhaps even likely, that currency markets will move over the long weekend.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 7898 0541 to get started.
