Tuesday brought mixed fortunes for the pound as currency markets continued on a cautious note. Sterling strengthened by over half a cent against the US dollar but fell back to its weakest level this week against the euro.
With Andy Burnham set to take over the lease to Number 10 on Monday, there is a real risk the pound falls even further in the coming days. You may wish to lock in the rate you’ll pay up to 12 months from now and avoid gambling that things work out in your favour. Our team will be happy to discuss how they can help you – just call 020 8003 4915.
It was a case of take your pick when it came to key themes yesterday. Tensions in the Middle East and the new UK prime minister both impacted exchange rates, but arguably the biggest factor was fresh American inflation data. The annualised inflation rate fell for the first time in five months to 3.5%, while prices actually fell month-on-month, the first time that had happened since 2020. Investors scaled back their bets that the Federal Reserve would hike interest rates on the back of that.
However, this week’s grappling over the Strait of Hormuz made it easy to question if that would last. To the dismay of consumers and businesses alike, the price of oil surged again on Tuesday, although President Trump did at least retract his threat to collect a toll on vessels passing through the region. Peace still looks some way off, even if a full blockade was averted for now.
Federal Reserve chairman Kevin Warsh used his first grilling in front of the US Congress to mount a defence of central bank independence and economic data. Suspicions that the Fed would be in thrall to the White House’s demands were wide of the mark, Warsh insisted. His Fed would remain focused on the economics and resist any political-motivated interreference, a position he has stressed several times, in his defence.
China’s economy expanded by an annualised rate of 4.3% in the first quarter of the year. This might seem like an impressive performance, but it was actually the weakest result since the end of 2022. Even a 27% increase in exports brought about by the AI infrastructure boom couldn’t prevent GDP from coming in below expectations.
GBP: Growth to the rescue?
With government borrowing costs approaching the highs they set back in May, both the pound and incoming prime minister Andy Burnham will be looking to growth to release the pressure. GDP figures for May will arrive tomorrow morning, but economists are only expecting a tepid 0.1% expansion, hardly the gamechanger that could improve sterling’s fortunes.GBP/USD: the past year
EUR: Breaking free
The euro at last broke out from several weeks spent firmly under the cosh. It’s impossible to predict if that trend will continue, but coming out from multi-month lows against several main rivals did at least serve to alleviate some of the pressure that had built up.GBP/EUR: the past year
USD: The peace prize
If the White House needed an example of why ending the energy crisis was worth it, it need look no further than June’s inflation data. Prices came down more than expected, thanks mainly to significant falls in the cost of petrol. Higher costs might support the US dollar, but there won’t be much appetite for another lengthy stand-off.USD/GBP: the past year
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