Last week was a relatively bad week for Sterling exchange rates; we saw GBPEUR as low as 1.1460 and GBPUSD as low as 1.3740 before rising again on Friday ending the week higher. Interestingly enough much of the week was spent by analysts looking for reasons why this happened, the most logical reason is profit-taking, Sterling has risen a lot in a short space of time and traders will always profit take at key levels. Another reason people are suggesting is the Scottish elections in May, and though it is an upcoming risk, it seems too early to be reacting to a potential Scottish referendum at this point. Fundamentally, I see nothing wrong with GBP at this point and I feel dips are for buying.
April so far hasn’t been great for Sterling, but after 3 solid months a little cool off is not the worst thing in the world; and it does highlight the need for correct risk management and hedging- when markets hit key levels, (1.40 on GBPUSD for example) it is generally where traders would take profit and sell, which means it is a good lock-in level for a buyer.
Key themes this week are generally around UK data and the ECB interest rate decision. The first meaningful data release for the UK is Employment figures on Tuesday morning, I am not expecting major swings here just yet, but there was a release last week which stated that job openings in the UK were back to pre-pandemic levels which sounded promising- with companies opening up again, the job market should begin to get busier. But until hospitality opens up fully we will not see the full extent of unemployment in the UK.
On Wednesday we have the core inflation rate release from the UK, expected at 1% (No surprises) followed by a speech from BoE Governor Bailey- we are not expecting this to be a market mover but will be watching the wires for anything about interest rates and recovery in the UK.
Thursday is the big day for the Euro with the ECB interest rate decision- we have seen the Euro gain momentum over the last couple of weeks and I will be looking to see if there is any push back from the ECB on the exchange rate. I am expecting a more positive meeting from the ECB this week with the momentum in vaccinations rising throughout Europe, I think they can begin talking about recovery and next steps across the board.
On Friday we have UK consumer confidence and retail sales figures- we are expecting the retail sales numbers to come in stronger which could be supportive to Sterling.
Alongside all of the data, with the UK now reopening- I will also be watching cases and vaccination numbers, though a small rise in cases is expected, the proof of the vaccination working is hospitalisation rates to be lower- so this is where I will be watching- but if Israel is anything to go by, we should not see any rises in this area.
As always if you have any questions or would like analysis on a particular currency pair please don’t hesitate to contact me.