Sterling Update: Positive Momentum for the Pound

Here’s the latest currency news from our partner Moneycorp, to help you find out what your money is worth.

GBP

The pound ended last week with more positive momentum to the upside against both the euro and the US dollar. Sterling gained 1.5% versus the USD and is currently sitting towards the upper levels of recent trading ranges with both the dollar and the euro. The pound appeared to benefit from a more stable outlook on interest rate policy in comparison to the dollar, becoming more favoured by investors towards the end of the week. Last week’s labour market figures also showed strong wage growth amongst the public sector, manufacturing and financial markets, and the unemployment claimant count subduing.

The next hurdle for the pound came on Wednesday, when the UK CPI inflation data was released, showing a rate of 2.3%, which is above the expected 2.1%. This marks the lowest level since July 2021. A significant contributor to this inflation was the services industry, where prices rose by 5.9%, compared to the 5.5% projected by the Bank of England. Following the release of this data, there has been growing scepticism about a potential interest rate cut in June. Shortly after the CPI data release, Rishi Sunak announced the next UK general election on 4th July. Campaigning is now expected to start in earnest. Historically, the pre-election period has not caused significant volatility in GBP. However, this time there will be close examination of all policy announcements, particularly from Labour, and their potential implications for medium- and long-term economic growth, inflation, and interest rates.

GBP/EUR touched a 21-month high on Thursday morning, following Wednesday’s UK inflation data and the general election announcement. Although the market touched a similar level in February and March this year, to find a comparable point, we have to look all the way back to August 2022, before the now-infamous mini-budget. Additionally, the UK manufacturing and services Purchasing Managers’ Index (PMI) was released on Thursday morning. The manufacturing data exceeded expectations with a reading of 51.3, while services came in slightly below expectations at 52.9, down from 55.0.

Today, the UK retail sales report revealed a significant decline in retail sales volumes, which measure the quantity of goods bought by consumers. Sales dropped by 2.3% in April 2024, following a revised decrease of 0.2% in March 2024 with clothing, sports equipment, games and toys, and furniture sectors all experiencing notable declines in sales.

The Office for National Statistics (ONS) highlighted that poor weather contributed to the decline in spending by reducing the number of people visiting physical stores.

EUR

The euro remains resilient against the pound, which has tightened up the year’s trading range so far and also firmed up against the US dollar at the end of last week. Eurozone stocks opened higher earlier in the week as expectations for an interest rate cut from the European Central Bank in June continue to gather pace.

We had a slow start to the week on data due to bank holidays across some of the key contributors to the zone. However, yesterday, the French, German, and Eurozone Manufacturing and Services PMI data was released. The French services sector contracted slightly, coming in at 49.4, down from 51.3 previously, and the gradually recovering manufacturing sector came in above market forecasts at 46.7. In Germany, business activity rose for the second consecutive month. The services data exceeded forecasts, coming in at 53.9, while manufacturing posted 45.4 ahead of the expected figure of 43.5. Looking at the Eurozone as a whole, it was reported that economic recovery gained momentum in May, marked by stronger business activity, new orders, and employment. Its manufacturing PMI data exceeded forecasts, coming in at 47.4, up from 45.7 previously, while the services sector data came in slightly below expectation at 53.3, marking no change from the previous month.

Yesterday also marked the start of the annual Group of Seven (G7) meetings. This summit involves the heads of state or government from Canada, Italy, France, Germany, Japan, the UK, and the US.

None of the information contained in this article constitutes, nor should be construed as, financial advice.