This week: Why the Pound shone over the Euro
After a poor end to last week, the pound responded with a dominant performance this week, gaining an average of 0.8 per cent against the other major currencies. Indeed, it was only the Japanese yen that it lost out to (dropping 0.2 per cent). Such a performance has helped the pound climb to the top of the heap over the last month, having gained an average of 1.6 per cent since Christmas Eve.
This came as a result of positive economic data, which even managed to push political events in Davos and a tariff spat between the UK and US aside in the minds of investors. With the exception of last Friday’s poor economic data, figures were positive across the board for sterling. Employment reached a record high for the country, earnings growth for basic wages held up at 3.4 per cent and unemployment remained low at 3.8 per cent. In addition, Rightmove’s index of asking prices climbed 2.3 per cent higher this month, while the CBI’s Industrial Trends Survey showed the largest swing in optimism since 1958.
In the build-up to next week’s rate cut decision by the Bank of England, this positive data went as far as to reduce the likelihood of a cut from 70 per cent to 50 per cent in the eyes of investors.
The euro endured a tough week, winding up in last place amongst the big four currencies (GBP, EUR, USD and JPY), losing a cent and a third to sterling and giving up seven eights of a US cent. This was attributed more to an absence of positive developments than a poor collection of data, however.
An increase in inflation saw it return to 1.3 per cent, as expected, while construction output enjoyed a 0.7 per cent boost in November. Even positive ZEW’s surveys of economic sentiment were not enough to encourage investors over the course of the week.
Thursday saw the euro suffer a further blow, with the European Central Bank (ECB) President Christine Lagardeannouncing no change to monetary policy. Lagarde also launched the first strategic review of ECB policy in 16 years. While all of this had been anticipated by investors, there was emphasis placed on the seemingly dovish tone of Lagarde’spronouncements, leading to a continued lack of optimism in the euro and a markdown of the currency.
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Trevor Charnley: With an MSc in International Finance and Banking, I have more than ten years’ experience in foreign exchange and international payments. I currently lead a team of 20+ dealers who execute client transactions and provide moneycorp’s award-winning personal dealer service. I have extensive knowledge of the international payments process, from initial sign up to the final transaction. My experience and knowledge of FX markets ensures a quality international payment service that delivers outstanding value for moneycorp customers and ensures client retention. I also appear in many of moneycorp’s informative webinars.
moneycorp is a trading name of TTT Moneycorp Limited which is authorised by the Financial Conduct Authority under the Payment Service Regulations 2017 (reference number 308919) for the provision of payment services.