Sterling is still feeling the after-effects of last week’s Fed hike and Bank of England hold, but this week has its own run of data to watch. UK government borrowing figures and eurozone consumer confidence land on Tuesday, followed by business activity surveys for the UK, eurozone and US on Wednesday. Together, these are the more immediate things likely to move the pound, the euro and the dollar over the days ahead. Below, we look at what’s driving each pair right now and what to watch over the next week or two.
Latest market insights:
Pound to euro: a firmer rate outlook, but nearer-term data matters more this week
- Sterling eased slightly against the euro last week, but that move was mostly a side-effect of a broadly stronger dollar rather than anything specific to the pound or the euro.
- In the background, the case for a Bank of England rate rise later in the autumn has strengthened. UK inflation reached 3.1% in August, its highest reading since March, and UK retail sales for the same month rose 0.5%, comfortably beating expectations of a decline. Markets have nudged up the odds of a rise at the Bank’s next meeting. If it happens, that would eventually widen the UK’s interest rate advantage over the eurozone again, having narrowed slightly after the European Central Bank’s own increase earlier this month.
- More immediately, Tuesday brings UK government borrowing figures and a first look at eurozone consumer confidence, and Wednesday brings business activity survey data across both regions. These nearer-term releases are the more likely drivers of this pair over the coming week.
- For anyone buying a property in Europe, a 1% move against you on a €400,000 purchase would mean finding an extra £3,400, that is a significant sum to have to find at short notice. This is exactly the kind of situation our currency specialists help clients plan for. Rather than trying to guess which way the market will move, you can fix your exchange rate in advance for a future transfer date through a forward contract, or set a target rate you agree with through a rate order, so that you know in advance what you will need to budget for. There may be a deposit requirement for some of these arrangements. Our team can talk you through how each option works and whether it suits your situation. Call us on +44 (0)204 506 5672.
US dollar to euro: last week’s rise still setting the tone
- The dollar strengthened last week after the Federal Reserve’s rate rise, and most policymakers have signalled, through the projections released alongside that decision, that they expect to raise rates again before the year is out, though that next meeting is still a little way off. The open question is timing rather than direction.
- Nearer term, a few things are worth watching. Wednesday’s business activity survey, covering the UK, the eurozone, Germany and the US, is the next signpost, giving an early read on how firms are responding to a month that has already seen a major rate move. Oil prices are the other variable to watch: still elevated but easing over the past couple of sessions, a fresh spike would add to inflation pressure, while a sustained pullback would ease it.
Pound to US dollar: sterling’s weakest run since late July
- Sterling fell by around 1% against the dollar last week and now sits close to its weakest level since late July, as a Federal Reserve rise met a Bank of England hold. Looking further ahead, a Bank of England rise later in the autumn without a further move from the Federal Reserve would work to close that gap again, while a further Federal Reserve rise without a matching Bank of England response would widen it further.
- For now, though, this week’s data is the nearer-term driver. Business activity survey data on Wednesday, covering both the UK and the US, is the most immediate signal to watch for this pair over the coming days.
What to watch this week:
Tuesday 22 September:
- UK government borrowing figures for August. Borrowing has been running above official forecasts for the financial year so far, adding pressure on Chancellor John Healey ahead of his 28 October Budget, so this release is a marker of how much room he has to work with before then.
- A first look at how eurozone households are feeling about the economy this month. Sentiment has stayed downbeat for months, well below its long term average, partly reflecting higher energy costs linked to the Middle East conflict.
Wednesday 23 September:
- First survey-based snapshot of how businesses are faring this month, covering the UK, eurozone, Germany and the US.
If you have an international transfer coming up in the next few weeks or months, for a property purchase, a pension payment, supporting family abroad, or any other reason, the events of this week are a useful reminder that exchange rates can move quickly, and not always in the direction you’d hope.
The good news is that you don’t have to simply wait and see what happens. Speaking with a currency specialist costs nothing and carries no obligation. They can talk you through your options, including spot contracts for transfers you need to make now, and forward contracts for transfers you’re planning further ahead, and help you understand how today’s rate movements might affect your specific situation.
Contact Lumon on +44 (0)204 506 5672 for a free, no-obligation conversation and discover what options you have available to help.
