As we approach ten years since the Brexit vote that knocked 15% off the value of the pound against the euro, and only slightly less against the US dollar, is the pound in the middle of another crunch period?
June has opened with currency markets watching two things at once: the prospect of calmer geopolitics and the risk that inflation and interest rates may not calm down as quickly as hoped.
That matters if you are planning an overseas property purchase, selling abroad, moving money for family reasons or preparing for retirement overseas. The pound, euro and dollar are not being pushed around by one single story. Instead, markets are weighing up Middle East peace talks, oil prices, central bank signals and fresh economic data from the UK, eurozone and US.
The dollar has been kept in a narrow range as investors wait for clearer signs on US-Iran talks and the possible reopening of the Strait of Hormuz. A lasting easing of tensions would normally reduce demand for the dollar as a safer currency. Any setback, however, could quickly revive demand for it.
The euro has had a different boost. Inflation in the eurozone has picked up again, increasing expectations that the European Central Bank may need to raise interest rates. That can support the euro, although weaker growth signals from parts of the eurozone are still limiting enthusiasm.
For the pound, the picture is more balanced. UK mortgage approvals rose in April, suggesting some resilience in the housing market. But other housing indicators have softened, and higher borrowing costs remain a concern. Sterling has therefore looked steady rather than especially strong.
GBP: Pound steady, but housing clouds the picture
The pound has started June in a calmer mood than it had during some of May’s sharper moves. Sterling has not been immune to global nerves, particularly around oil and the Middle East, but it has avoided a dramatic move against either the euro or dollar.
The UK’s domestic picture is mixed. Bank of England data showed mortgage approvals rising to their highest level in more than a year, which points to a housing market that has not rolled over completely. But house price data and survey evidence have been less cheerful. For anyone budgeting for a property abroad, the message is familiar: sterling is holding up, but the backdrop is not settled.
The next UK data to watch includes services purchasing managers’ index (PMI) figures and speeches from Bank of England officials. Markets will be listening for any sign that the Bank is more worried about inflation, growth, or the effect of higher borrowing costs on households.
GBP/EUR past year
EUR: Euro gets support from inflation
The euro has found some support from a rise in eurozone inflation. Higher inflation makes it more likely that the European Central Bank will keep policy tighter, or raise rates again, which can help the euro. The ECB’s next decision is on 11 June.
That said, the eurozone is still not presenting a clean story of strength. Services data due this week will matter because it gives a read on the part of the economy that is closest to consumers and businesses. If inflation is rising while growth remains fragile, the European Central Bank has a more awkward job.
For buyers in France, Spain, Italy, Portugal or elsewhere in the eurozone, the key issue is whether euro strength becomes more persistent. At the moment, the euro’s support is real, but it is still being tested by wider caution in markets.
EUR/USD past year
USD: Dollar waits on peace talks and jobs data
The dollar has been pulled in two directions. On one side, any progress towards peace in the Middle East reduces demand for the dollar as a safer currency. On the other, strong US economic data can still support it by keeping interest-rate expectations firm.
US job openings rose sharply in April, which suggested the labour market remains resilient. That matters because the Federal Reserve is watching jobs and inflation closely before deciding its next move. Stronger employment data can make it harder for the Fed to sound relaxed about future rate decisions.
For anyone buying property in the US or sending money there, the dollar remains sensitive to sudden shifts in sentiment. Middle East headlines, oil prices and US labour market figures could all move expectations quickly.
USD/GBP past year
What’s coming up: key events to watch
Looking ahead, several important economic events could influence exchange rates over the next couple of weeks:
- EU, European Central Bank speeches (3 June)
- EU, Services purchasing managers’ index (PMI) final (3 June)
- UK, Services purchasing managers’ index (PMI) final (3 June)
- UK, Bank of England speeches (2 June)
- US, ADP Employment Change (3 June)
- US, ISM Services PMI (3 June)
- US, Non-Farm Payrolls (5 June)
- US/Middle East, Peace talks and oil supply route updates (ongoing)
How to protect your own budget
Exchange rates can shift quickly – and when you’re moving large sums for a property purchase, that can mean thousands gained or lost. Speak to a currency specialist to discuss tools like forward contracts, which let you lock in an exchange rate for the future, shielding your budget from adverse movements.
