The time of reckoning is upon the pound, as it must now navigate both the Bank of England’s interest rate decision today and Friday’s GDP figures before reaching the relative safety of the weekend.
Sterling has slid in the second half of this week ahead of the key events. Once again, predictions lean heavily in favour of the Bank holding interest rates. Yet with inflationary pressures subsiding and growth weak, the sense is that we’re entering the final stretch of the 5.25% era.
While homeowners and businesses will be dreaming of a cut, perhaps the most we can expect at this meeting is for more detail on timing. Policymakers have so far been short on detail, but they do have a habit of signposting changes in a bid to prepare markets.
GBP/EUR was little changed yesterday, while sterling struggled to fight off pressure from the US dollar. EUR/USD had shed around 0.25% by the end of the European session, but remained well above where it started the week.
The US dollar is still benefitting from the belief that the Federal Reserve’s trajectory and that of its rival central banks has diverged. Markets expect the BoE and the European Central Bank (ECB) to cut this summer as the Fed waits until September at the earliest.
It’s worth bearing in mind that the current narrative is completely different from the one at the start of the year. Back in January, it was presumed that the Fed would move quickly and aggressively to cut rates, perhaps as many as five or six times over 2024. Things change fast in the world of finance, and for currency markets (as well as your budget), that means the shadow of volatility always looms.
Sweden’s Riksbank yesterday decided to cut interest rates from 4% to 3.75%. That marks the first time it has lowered interest rates since 2016, a remarkable feat given the immense interest rate volatility from other central banks since the pandemic.
In other news, some of the hottest stocks of the lockdown period – think stable bike manufacturer Peloton and video conference service Zoom – are among fifty companies to have shed $1.5bn in market value since the start of 2021. According to a Financial Times report, a good chunk of that period’s trendiest stocks have since plummeted, as behavioural changes that were thought would become entrenched have faded away.
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