The pound strengthened to a new highest point since August 2022 yesterday against the euro, well over 2% stronger than last month.
You may have noticed that we mention August 2022 a lot and wonder why sterling fell at that point. In short, it was a change in political leadership, the end of Boris Johnson’s premiership, the rise of Liz Truss and then the mini-Budget, that saw GBP/EUR weaken by nearly 8%.
This should act as a warning against complacency. With so many elections right now – not just the UK’s – if today’s best rate for 22 months is appealing and allows you to fulfil your plans, why not lock it in for the year ahead? You can do that with a call to your account manager on 020 7898 0541.
Back to today, if you thought that the sharp rise in GBP was just because of the euro’s troubles in the wake of the snap French election being called, the pound is up a similar amount against the US dollar too. But if you thought it was anything to do with some innate strength in the UK economy, this morning’s flatlining economic data (April’s rain washed out GDP apparently) might suggest otherwise.
Interest rate decisions continue to play an important part in exchange rates. Yesterday’s earnings data showed that pay rises are still running at around 6% in the UK. This was reflected, too, in the KPMG UK Jobs Report, which showed how resilient the labour market is.
The Bank of England will be weighing this in its decision whether or not to cut rates at their meeting next Thursday, even if they are willing to do so anyway during an election.
They might be influenced by the USA, in which case this afternoon poses a risk to sterling’s strength. America’s inflation data will be out at 1.30pm (UK time) and the US Federal Reserve will announce its interest rate at 7pm, followed by a press conference.
