Sterling took a beating yesterday against the euro but has recovered just as fast this morning and remains close to its highest level since summer 2022. To lock that in for the year ahead, call your trader on 020 7898 0541.
At Smart Currency we like to avoid jargon where impossible, but there is no getting away from the fact that the attitudes and actions of central bankers are dominating the currency markets right now and they divide into ‘hawks’ and ‘doves’.
Hawks, putting it simply, are willing to keep raising interest rates in the battle to control inflation, while doves tend to want to protect the economy in general by keeping interest rates low.
The speculators whose actions dominate the currency market prefer the hawks as they get a better return from higher interest rates.
So, the pound strengthened against the euro early in the week after Christine Lagarde, the president of the European Central Bank, was perceived to be going a bit dovish. Then the pound sank by well over 0.5% yesterday after she appeared a bit more hawkish.
However, it has already recovered this morning.
Meanwhile, members of the Monetary Policy Committee of the Bank of England have been perceived as hawkish lately – after all, UK inflation is still the worst among most of our competitors – and hence the pound hit an 18-month high against the euro earlier this week.
However, that could all turn on a dime tomorrow, when the Bank will be setting its interest rate. Although no change from 5.25% is expected, a dovish tone, either from the governor Andrew Bailey, or in the meeting minutes, or just from the voting pattern, could seriously dent sterling.
For those with a US dollar transaction coming up, the US Federal Reserve has its own interest rate decision today – 7pm UK time – and this is likely to have an effect too, although no change in America’s 5.5% rate is expected there either.
The currency markets are less like hawks or doves and more like the flock of pigeons that reside outside our office in Lyric Square – scattering at the slightest thing and flying into the ear of anyone who happens to be passing.
You can avoid all that by fixing in your rate. After all, this is close to the best GBP/EUR for 18 months, and a bird in the hand…
