Sterling continues to ride high. Against the US dollar, the pound reversed the downward direction it took on Tuesday and Wednesday, and it ends May almost 2% up on where it started the month.
Against the euro the pound has seen almost three weeks of steady gains and is a good 1.5% above the average of the past year, with occasional spikes close to the highest level for two years.
The pound’s strength has been a result of the General Election starting and, more specifically, the money markets’ belief that the Bank of England (BoE) will delay the expected interest rate cut in June. While independent of government, there is a feeling that the BoE will avoid cutting interest rates just two weeks before an election.
No such problem for the European Central Bank (ECB), which will make its interest rate decision next Thursday, with a quarter of a percent rate cut expected. This is despite the strong labour market: eurozone unemployment fell to a record low of 6.4% in April, according to Eurostat.
Any deviation from what is expected from the ECB could have a big impact on GBP/EUR and it will certainly be worth a talk to your account manager about updating your currency plan if trading in this pair.
The US dollar has taken the multiple criminal convictions of leading presidential candidate Donald Trump yesterday in its stride. The US Dollar Index strengthened by 13% yesterday, despite unanimous verdicts in Trump’s hush money trial, the first of four criminal cases he is facing.
With political instability back on the table on both sides of the Atlantic, 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.
There has been little data from the UK this week, but there was good news for home owners, with property prices rising in May to an annualised 1.3% according to the Nationwide Building Society. There will be more mortgage and consumer credit data later this morning from the BoE.
The latest in the UK election has seen the focus switch to the Labour Party’s internal politics, with leading left-wing campaigners apparently being ousted.
In geopolitics there has been a marked change in US policy, with Ukraine now allowed to use American weapons to hit targets inside Russia. Ukraine is facing an offensive in the Kharkiv region.
