Sterling starts the week at a sixteen-month high against the euro, helped by stronger than expected UK growth and continuing worries about France. This week’s UK jobs and inflation figures could show whether the Bank of England is likely to raise interest rates, and a busy week of central bank and Budget news follows. Below, we look at what could move each pair over the next week or two.
Latest market insights:
Pound to euro: a sixteen-month high meets a data test
- Sterling rose around 0.4% against the euro last week to a new sixteen-month high. Two things drove it. UK growth for August came in at 0.1% when economists had expected a small fall, extending a run of resilient figures. And worries about France’s public finances kept the euro under pressure.
- This week brings the most important UK data of the month. On Tuesday, jobs and wages figures are expected to show unemployment edging up to around 5%. On Wednesday, UK inflation for September is expected to rise to 3.4% from 3.1%. The Bank of England has said it is more likely to raise interest rates the longer energy-driven price rises persist, so a higher inflation reading, together with firm jobs figures, could strengthen hopes of a rate rise and support sterling. Rising unemployment, slower pay growth or cooler inflation could do the opposite.
- It is also worth remembering that part of sterling’s rise reflects euro weakness rather than UK strength. If worries about France ease, the pound could give some of those gains back.
- Sterling is near a 16-month high against the euro, but on a €400,000 purchase a 1.5% move either way is still worth around £5,000. That is a significant sum to have to find at short notice. This is the kind of movement that can happen, in either direction, between agreeing a purchase price and completing. Our currency specialists work with clients to plan for it rather than guess where rates will go. A forward contract lets you fix a rate for your completion date, so you know exactly how much you need, though you would not benefit if rates moved in your favour. A rate order lets you set a rate you would like to trade at, and acts on it automatically, so you do not have to watch the market. Both can involve a deposit and are worth discussing with a specialist in the context of your own timeline.Call us on +44 (0)204 506 5672 to talk through your options.
US dollar to euro: the dollar swings, the Fed goes quiet
- The dollar swung sharply last week. It jumped after US inflation rose to 3.7% in September, higher than the 3.6% expected, with a separate measure of wholesale prices also coming in hot. But the gains faded as markets judged that a Federal Reserve rate rise this month was unlikely, after Fed Chair Kevin Warsh declined to signal a move. A rise in December is still widely expected, and the dollar ended the week little changed against the euro.
- This week, Fed officials are in their quiet period ahead of next week’s decision, so markets will take their cues from data and from global events, including developments in the Middle East that could affect oil prices. For the euro, Friday’s business activity surveys for Germany and the eurozone are the next test, and worries about France’s budget remain a background pressure.
Pound to US dollar: a ten-month low, then a recovery
- Sterling fell to its lowest level against the dollar in around ten months in the middle of last week, after the US inflation figures. It recovered after the UK growth figures and as the dollar’s gains faded, and it remains down around 1% since mid-September.
- This week, UK inflation on Wednesday is the main driver for this pair. A higher reading could strengthen hopes of a Bank of England rate rise and support sterling, while a lower one could weigh on it. With the Fed quiet, UK data may have more influence than usual, though as ever none of this can be predicted with certainty.
What to watch this week:
Tuesday 20 October:
- UK jobs and wages figures. Unemployment is expected to edge up to around 5%.
Wednesday 21 October:
- UK inflation figures for September, expected to rise to 3.4% from 3.1%.
Friday 23 October:
- First look at October business activity across 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.
