Sterling begins the week on the backfoot
After making headlines over recent weeks for positive reasons, yesterday we saw the Pound drop against a number of major currency pairs such as the Euro and the US Dollar throughout the day’s trading session.
The GBP/EUR exchange rate last week climbed to highest levels seen in around 2-years, and traded as high as just 40-pips from the highest levels seen in the past 5 ½ years making headlines as sentiment surrounding the Pound became increasingly bullish.
Yesterday however, we saw the mid-market rate drop into the 1.18’s for the first time in 3 -weeks providing our clients with Euros to convert into Pounds with an improved conversion opportunity.
One of the main reasons for the fall isn’t UK specific but related to the financial markets current attitude to risk. The increasing tensions between Russia and the Ukraine continue to cause international headlines. These geopolitical issues are causing a ‘risk-off’ attitude within financial markets and this often correlates with a weaking Sterling. When the seriousness of the Covid-19 pandemic surfaced back in early 2020 we saw a major sell-off in the Pound’s value with the rate of cable (GBP/USD) hitting the lowest levels in 35-years so that was also a good example of how a ‘risk-off’ attitude can negatively impact the Pound’s value.
The geopolitical concerns have caused a stock market sell-off, with the Nasdaq last week recording its worst week since 2020 and the UK’s FTSE 100 also saw a sell-off, so it’s not just currency markets that are feeling the effects of the news coming out of Russa and Ukraine.
Another concern for the Pound could be the political instability caused as a result of Prime Minister Boris Johnson’s position, as a number of politically damaging reports regarding work party’s surface from back when the UK was in a strict lockdown. This topic is also worth following especially as economic data releases out of the UK are light this week.
Strong start to the week for the Euro despite negative economic updates
The Euro made gains against most currency pairs yesterday, most notably the Pound after the EUR to GBP exchange rate climbed to its highest levels in 3-weeks.
This may be a surprise to some of our readers, especially after the protests in Brussels over the weekend which apparently numbered in the 10’s of thousands as people displayed their anger at vaccination mandates and restrictions.
Early on the Monday the PMI readings out of Europe, which is often used as a good gauge of overall economic health showed that expectation of economic growth dropped in January compared to December and hit its lowest levels since last February. This is most likely due to the recent lockdown measures and I think the increasing cases in France for example will also be influencing the economic outlook within the Eurozone.
The PMI reading may have dropped but it’s still over the 50 level which signals growth, but I think that our client with a Euro requirement should remain weary of dropping sentiment and PMI readings are a good way to monitor this.
Another topic of discussion has been the European Central Banks unwillingness to alter interest rates despite increasing inflation levels which is a global issue at the moment. Both the Bank of England and the Federal Reserve Bank in the US have made amendments and suggested future amendments are in store so the Euro could lag as a result of a more bearish outlook from the ECB.
German GDP is due for release this Friday morning so that’s potentially the main market mover for the Euro this week in terms of economic data releases. Do get in touch if you wish to plan around this release.
Busy week for economic data releases out of the US
The US and President Biden’s plans in relation to the tensions between Russia and the Ukraine are in the headlines consistently at the moment. There are concerns that tensions could spill over although Russian spokespersons have declared that the West is overreacting.
Either way, global stock markets are selling off with the S&P close to reaching correction levels. As previously discussed in the GBP section there is a ‘risk-off’ sentiment within the currency markets and this has seen the pound lose value whereas the US Dollar, which is a safe-haven has climbed as a result of the concerns regarding Russia and the Ukraine.
Those of our readers with a US Dollar requirement should continue to monitor how those issues unfold, and at the same time be aware of the economic data releases which are scheduled for this week as updates out of the US are considerable.
Yesterday manufacturing and services PMI data showed a decline, and later today Consumer Confidence figures will be released along with House Price data which could also influence the US Dollars value. Wednesday will be one of the busier days as Mortgage applications will be released in the afternoon and then after hours in the UK the FED’s interest rate decision and Monetary Policy Statement will be announced which could move the markets, especially as there are expectations for interest rate hikes from the FED throughout the year.
US Gross Domestic Product will be released on Thursday along with Initial Jobless Claims to provide us with an overview of the US economy, and on Friday there will be Consumer Sentiment data released so there are many updates that could influence the USD this week.
This blog post is intended to provide This blog post is intended to provide you with information on the services Lumon Pay Ltd (“LPL”) offer and should not be interpreted as advice or as a solicitation to offer to buy or sell any currency or as a recommendation to trade. Foreign exchange rates provided therein are for indicative purposes only and are not intended to give an accurate reflection of current currency exchange rates or to predict future movements in currency exchange rates. LPL, trading as Lumon, is a company registered in England with its registered address at Building 1, Chalfont Park, Gerrards Cross, Buckinghamshire SL9 0BG. LPL is authorised by the Financial Conduct Authority as an Electronic Money Institution (FRN: 902022).