Over the weekend sterling climbed to a new highest point since the early spring of 2022 against the euro. It is now 5.5% stronger than this time last year and around 7% stronger than the average of the past five years.
Exchange rates have a tendency to revert back to the average over time, so if approaching a significant purchase in the eurozone, consider locking in today’s exceptional rate, with a call to your account manager on 020 8108 5163.
Sterling continues to struggle against the US dollar, having lost roughly two cents since the election on Tuesday.
Is GBP/EUR’s new high more down to sterling’s strength or the euro’s weakness? Probably a bit of both. The euro has certainly been on the back foot since the US election result, falling between 2% and 0.5% against most rivals and 1.75% down against a basket of currencies. Sterling has had its ups and downs since the result but overall the sterling index is only down by around 0.35% since the result.
While the re-election of Donald Trump could be bad news for the UK economy it is likely to be considerably worse for Europe’s, with tariffs on goods exports and the potential withdrawal of aid to Ukraine.
The pound has been pegged back by the drop in stock markets as British businesses count the cost of the budget the previous week. Retailers, caterers and the entertainment sector will all suffer from the lowering of the National Insurance contribution starting level from £9,100 to £5,000. Shares in baked goods retailer Greggs fell by 6.8% and in M&S by 4.5%. Sainsbury’s says it faces an extra £140m bill.
On Thursday the Bank of England (BoE) made only its second interest rate cut for several years, dropping another 25 basis points. While a larger cut was an outside possibility, the previous week’s tax and spending budget is viewed as inflationary by the BoE and so is likely to curtail future interest rate cuts. Good news for sterling, if another blow for business and mortgage holders.
What can we expect from the rest of the week? Today may be quiet as the US has a federal holiday for Veteran’s Day (you may wonder why the UK doesn’t), but tomorrow is the start of a round of high-level data. There is unemployment and earnings data from 7am which – considering that high pay rises have been dissuading the BoE from cutting interest rates as fast as they might – may be influential.
There is also the RICS House Price Balance on Wednesday night. Last month’s showed UK surveyors highly optimistic about house price rises, but are they still? And on Friday we’ll get GDP data and an idea of whether the UK economy is rising.
