Sterling starts the week down among the weeds against the euro, close to its lowest for two years. This comes despite the better-than-expected GDP result for November on Friday, which revealed that the UK may not have been in recession in 2022 after all.
That sort of news should be supportive of sterling, because it suggests that the Bank of England can continue to raise interest rates to beat inflation without wrecking the economy. That in turn means that investors in sterling get a better return. Plus, it’s good news that the British economy is doing better than expected.
In actual fact, GBP/EUR didn’t react to the news significantly. That may change on Wednesday with the all-important inflation reading, upon which will hang wage demands, interest rates and much else. Before that, tomorrow we will hear unemployment data and then on Friday there is an important consumer confidence reading and retail sales too.
However, it is Wednesday’s inflation that is most likely to affect sterling, and it may be wise to limit your currency exposure before then. You can do that with a call to your trader on 020 8108 5163, where you might want to discuss locking in your rate with a forward contract.
Why would you do that when we’ve already established that sterling against the euro is close to a two-year low? Because if you expand the graph a little you’ll see that you’re getting as many euro for your pounds today as at most of the past five years. Will that continue? There is plenty to worry about on the economic front for the UK and if the markets were unimpressed by Friday’s good news on GDP, what will happen this week?
