Sterling continues to enjoy a positive week, trading at around its highest levels for the past two months against EUR and the past year against USD.
Chatter in the currency markets is all about sterling’s relative strength against the whole basket of currencies, and what this means long term. The most interesting long-term movement is the decline in the power of the dollar, which has certainly benefited sterling. It doesn’t explain sterling’s support against the Canadian, Australia or New Zealand dollars however, or Scandinavian currencies.
In the shorter term, positive hints about the chance of a Brexit deal could benefit sterling, yet no breakthrough is really expected until political leaders on both sides of the Channel weigh in to clear the logjams, and that is unlikely until the autumn. There is also the possibility that a second Covid wave deluges Europe and takes a Brexit deal along with it while attention is elsewhere.
In the meantime, this morning we have had positive news on inflation, which exceeded expectations at 1%. The government’s financial stimulus measures appear to be cutting through, encouraging spending and outweighing the deflationary effects of unemployment. This boosted sterling to the week’s highest level against the euro this morning.
To talk through where sterling might go next, and how to lock in today’s stronger level, call your trader on 020 8108 5337.
