Sterling starts the week close to its strongest against the euro in around sixteen months, helped more by worries about France than by anything happening at home. This week brings US inflation figures on Wednesday, UK growth figures on Thursday, and a busy run of central bank speeches. Together, they could decide whether sterling’s recent gains hold. 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, but built on euro weakness
- Sterling edged up around 0.3% against the euro last week and is up more than 1.5% over the past fortnight. The main driver has been the euro rather than the pound, worries about France’s public finances have pushed French government borrowing costs sharply higher and left the euro at its weakest against the dollar since May last year. Sterling has also had some support from expectations that the Bank of England could raise interest rates again later in the autumn, and from comments by Governor Andrew Bailey last week stressing the Bank’s commitment to bringing inflation back to target.
- It is worth being clear about what that means. Gains that come from weakness elsewhere can reverse quickly if the worries ease, so this is a level to treat with care rather than assume will last.
- At home, the key UK release is Thursday’s growth figures for August. Economists expect a small fall after July’s 0.4% rise. A weaker result could cool hopes of a Bank of England rate rise and take some support from sterling, while a stronger one could do the opposite. Five Bank of England policymakers also speak this week, including Catherine Mann on Monday, Megan Greene on Tuesday and Governor Andrew Bailey on Friday. Mann and Greene were two of the three who voted for a rate rise in September, so markets will listen closely for signs that more colleagues are moving their way.
- The euro has its own events to watch. European Central Bank President Christine Lagarde speaks on Wednesday, and last week’s account of the bank’s September meeting suggested policymakers see little urgency to move again soon, despite eurozone inflation reaching 3.8%. Any hint that further rate rises are coming could help the euro recover some ground.
- 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: US inflation is the test
- The dollar is close to its strongest against the euro in around seventeen months, though it gained only around 0.2% last week as it paused after a weak US jobs report the week before. Markets now see another Federal Reserve rate rise later this month as unlikely, though one by December is still widely expected.
- Wednesday’s US inflation figures for September are the main test this week. They are expected to edge up from 3.4%. A higher reading would strengthen the case for further rate rises and could support the dollar, while a softer one could give the euro room to recover. Thursday brings US retail sales, a guide to how willing American consumers still are to spend, and a speech from Fed Chair Kevin Warsh. It is the last Fed commentary before officials go quiet ahead of their late October meeting, so it may carry extra weight.
- One thing to keep in mind is that the Fed’s own minutes, published last week, showed that most officials thought another rate rise would likely be appropriate, but they were written before the weak jobs report. Warsh’s words on Thursday may show whether that view has changed.
Pound to US dollar: little changed on the week, down on the month
- Sterling was little changed against the dollar last week, up around 0.1%, but is down around 2% over the past month as the dollar strengthened on the Federal Reserve’s rate rise and expectations of more to come.
- The same US events apply here. A firmer US inflation reading or a determined message from Warsh could weigh on sterling again, while softer data could give the pound room to recover. Thursday’s UK growth figures add a second test, this time for sterling itself. As ever, none of this can be predicted with certainty.
What to watch this week:
Monday 12 & Tuesday 13 October:
- Bank of England policymakers Catherine Mann (Monday) and Megan Greene (Tuesday) speak. Both voted for a rate rise in September.
Wednesday 14 October:
- US inflation figures for September, expected to edge up from 3.4%.
- European Central Bank President Christine Lagarde speaks.
Thursday 15 October:
- UK economic growth figures for August, expected to show a small fall after a 0.4% rise in July.
- US retail sales, and a speech from Fed Chair Kevin Warsh, the last Fed commentary before officials go quiet ahead of their late October meeting.
Friday 16 October:
- Bank of England Governor Andrew Bailey speaks.
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.
