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How market changes could impact your next currency trade

13 January 2025

Weekly Market Headlines:

  • Sterling is under pressure this week, struggling against both the euro and the US dollar, as concerns about rising UK debt grow. Investors are offloading UK gilts (government bonds) due to worries about debt levels, much like a household cutting back on spending when credit card bills pile up. The 30-year gilt rate has hit a 25-year high, signalling waning market confidence, especially with uncertainty around Rachel Reeves’ economic plan. This could lead to more volatility for the pound.
  • The US dollar strengthens as the Federal Reserve revises its rate expectations and adjusts its economic outlook. The pound has dropped to its lowest level against the dollar since November 2023, complicating short-term recovery for GBP to USD.
  • All eyes will be on inflation data this week. If UK inflation rises to 2.7%, it could limit the Bank of England’s ability to adjust interest rates, similar to a driver realising they’re low on fuel mid-journey. This could trigger more currency market volatility.

Sterling faces pressure this week, struggling against the euro and the US dollar amid growing debt concerns. UK gilts, government bonds used to raise funds, have seen heavy sell-offs as investors worry about rising debt and economic stability. The 30-year gilt rate is at its highest in over 25 years, signaling market uncertainty, especially with Rachel Reeves’ economic plan in question. This could lead to more volatility for the pound.

The US dollar strengthens as the Federal Reserve revises its outlook, now expecting just two interest rate cuts this year, down from four. The pound has dropped to its lowest level against the dollar since November 2023, complicating short-term recovery for GBP/USD.

Inflation data on Wednesday is key, with UK inflation expected to rise to 2.7%. If confirmed, it could limit the Bank of England’s flexibility on interest rates, spurring further market volatility.

Thursday’s economic data release, including GDP and industrial production, will provide insight into the UK’s financial health. Strong performance could stabilize the pound, while disappointing numbers might add pressure.

Retail sales data on Friday will give a snapshot of UK consumer spending. If resilient, it could offer a boost to the pound, especially following US retail sales data earlier in the week.

If you’d like to discuss what options you have to protect your budgets against currency movement, contact your account manager on +44 (0) 204 506 5672 to explore your options.

What events might move exchange rates this week?

GBP

  • Wednesday: Inflation data
  • Thursday: GDP, Industrial & Manufacturing Production data
  • Friday: Retail Sales

EUR

  • Thursday: European Central Bank minutes

USD

  • Wednesday: GDP data
  • Thursday: Retail Sales