Last month was an EXTREMELY volatile week for Sterling- with GBPEUR falling to 1.1550, GBPUSD falling to 1.34, and EURUSD also falling to 1.1560. Now, if you were to read the tabloids, you would think this was happening because of the so-called petrol crisis in the UK- but actually, it was a lot simpler than that.
Typically, end of the month/quarter we do see a lot of re-balancing, which will involve hedge funds selling off positions and consequently going into the US Dollar- which is exactly what we saw last week when money flows into the USD, high beta currencies like the Pound, unfortunately, fall off significantly and lose a lot of momentum- predictably on Friday 1st October, we saw a complete reversal of this move and GBPEUR closed at 1.1680 and GBPUSD closed at 1.3540.
Now, if we turn to what has been happening in the UK, with energy companies going bust, and panic at the petrol stations (Well, up until today, managed to fill a full tank with no waiting!)- we have seen a lot of panics all around, much caused by rising natural gas prices and media hype.
So what do we really need to be looking at for the Pound? The reality is there is a logistics issue, and supply chain shortages (worldwide) which will cause issues here in the UK, and I am expecting this to continue into December. Furlough has now ended, and we will begin to see a true image of UK unemployment over the coming weeks, and though there are jobs out there, we need to consider people’s skillsets and wage desires before simply looking at job openings and people that are unemployed. Universal Credit (£20 increase) is also ending this week, which I am sure will also have an effect on individuals and the economy- so there is a lot to be aware of.
The above will trickle into our rising inflation, our retail sales, jobs numbers, mortgage applications, manufacturing numbers, and of course our GDP- so we could be in for a dicey few months with Sterling depending on how this all goes. The one thing, that doesn’t seem to be a massive concern in the UK is the pandemic and lockdown fears- and as long as this continues, we can begin to see some real recovery.