Sterling starts the week well above last Monday against the US dollar – some 4% – but in a similar position to where it started last week against the euro. That is still slightly above the average of the past five years.
Will it remain in this elevated position?
It’s going to be an interesting week, with higher level data releases including unemployment tomorrow, inflation on Wednesday and retail sales on Friday.
Between those there is the Autumn Statement on Thursday. The chancellor has made the point that unlike, a traditional Budget, there will be no surprises – no rabbit pulled out of the hat at the last minute. Unlike the previous, disastrous mini-Budget, there will be official projections from the Office for Budget Responsibility published too. These are likely to show a similar picture to the Bank of England’s warning of a recession of up to two years.
However, I heard some better news on that front last week. At a business event last week where the Bank of England’s senior officials were gauging the views of industry, I was talking to a member of the monetary policy committee. I understood that the expectation was that while the recession could last for two years, it seems likely to be shallow. Indeed it would only need a small variation in the actual from the current assumptions for it not to last less than a year. Furthermore, he expected inflation to return to 1% within two years. High interest rate rises are designed to increase unemployment enough to scare people out of demanding large pay rises that will fuel inflation. That’s is why the increases in interest rates have been the most dramatic in the history of The Bank’s Monetary Policy Committee.
What effect will all this have on sterling? Sadly it is impossible to say. However, we are certainly in a period of instability, not just this week but for the next year or two. Therefore to lock in your rate with a forward contract and reclaim a bit of stability for yourself, call your personal trader on 020 8108 5163.
