GBP set for volatility with inflation, wage data and election manifestos ahead

The pound flopped towards the end of last week as the Bank of England (BoE) soundly squashed hopes of a near-term interest rate increase.

GBP/EUR fell from a high of €1.1923 to a low of €1.1781 last week, GBP/USD eased from $1.2983 to $1.2848, GBP/AUD dipped from AU$1.7643 to AU$1.7362, GBP/NZD fluctuated between NZ$1.8614 and NZ$1.8949 and GBP/CAD slid from C$1.7805 to C$1.7606.

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What’s been happening?

Comparatively sturdy UK growth and climbing inflation had supported the hope that the BoE might be contemplating raising borrowing costs sooner than previously expected. However, Thursday’s BoE interest rate decision soundly kicked such projections into touch.

While the central bank was relatively optimistic about the UK’s outlook, the odds of any changes being made to interest rates before 2019 appears slim. Demand for the pound fell as only one member of the Monetary Policy Committee (MPC) voted to increase interest rates and Sterling failed to recover before the weekend.

The euro, meanwhile, received a shot in the arm from Germany’s Q1 growth data. GDP in the Eurozone’s largest economy came in at 0.6% in the first three months of 2017 – making it the best performing G7 economy.

It wasn’t such good news from the US however, with disappointing retail sales figures limiting Sterling’s losses against the US dollar.

What’s coming up?

Whether or not the pound is able to recoup last week’s losses largely depends on how some of this week’s high-ticket items on the UK’s economic calendar turn out.

With inflation, employment, wage growth and retail sales stats all due for release over the next few days, GBP exchange rates could be in for a rocky ride.

The pound may fall if the reports show spiking consumer price pressures and stagnant wage growth as such a scenario is likely to inhibit spending and weigh on the UK’s all-important services sector in the months ahead.

However, economic news will be vying for attention with political developments this week as party manifestos are published ahead of the 8th June general election.

Labour’s manifesto was leaked last week and the Conservatives’ own plans are likely to come under equal scrutiny. Pound volatility can be expected if the manifestos have any impact on which party dominates in the latest polls. GBP exchange rates could fall if Conservative support falters as the prospect of a Labour or coalition victory would increase the uncertainty surrounding the UK’s Brexit negotiations.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.