It’s a game of snakes and ladders for sterling this week as high-level economic data arrives at 7am each day from the UK’s Office for National Statistics. Yesterday it was unemployment and earnings, which indicated that the economy is still running hot – so far as wage demands go anyway – and boosted sterling by around 0.3% (which gradually dissipated through the day).
This morning the inflation data arrived and showed a small rise, but easily explained away by gas and electricity prices, and still with core inflation falling. Hence the pound has weakened against the euro by roughly 0.35% in the past couple of hours.
Tomorrow it’s the turn of GDP (Gross Domestic Product, i.e. whether the UK economy is growing or not) and then on Friday it’s what’s happening with consumer spending, with retail sales data.
The currency markets are reacting because it all indicates whether interest rates will be cut again at the Bank of England’s next meeting. However, as this isn’t until 19th September, and there will be more data on all these dials before then, the rises and falls in exchange rates have been fairly muted.
Muted maybe, but still significant for those with a large international transaction in the offing. Should you be worried? There is certainly a complicated mood, as we saw last week with some of the largest stock market falls since Black Monday in 1987.
Sterling is generally at the mercy of larger global movements, which is why our own data shifts the dials by such small increments as 0.3%, while last week’s global stresses caused it to lose 2% to 3%. Even a slightly negative employment report from the US last week had more influence than the upbeat report on the UK employment market yesterday.
With America’s inflation data coming out this afternoon, the febrile atmosphere in the currency markets looks likely to continue, with the potential for large movements in exchange rates.
So, worried, no; wary and proactive, yes. There is plenty you can do to derisk your large currency transactions. For example by fixing your exchange rate for the period of your choosing. Just give your account manager a call today on 020 7898 0541.
