it was a relatively positive week for Sterling exchange rates with the GBPEUR price comfortably above 1.20 and GBPUSD above 1.30- that was until Friday- when we saw a much weaker than expected retail sales report released for the UK, coupled with consumer confidence figures as bad as they were in 2008.
The impact of these data releases was GBPEUR rates falling into the 1.18 area and GBPUSD falling to 1.28- the unfortunate thing about this release is that this is only the beginning of cracks showing in the UK economy, of course, this is fuelled by rising energy and fuel prices- if consumers are spending more on their everyday bills, they will have less to spend on clothes, etc- and this will only get worse, especially as interest rates go up and people have to pay more on their mortgages.
The only way to curb inflation is by raising interest rates, and though the BoE is priced in for another hike in May (Alongside the Fed)- it is unlikely they are able to keep up with the aggressive tightening they are currently doing- we must also acknowledge the political instability in the UK, and that the May local elections could add some fuel to that fire as well- unfortunately, it seems the outlook for Sterling for the rest of this year does not look fantastic.
Looking at Europe now, the lack of monetary tightening is causing problems for the single currency- and the ECB will have to start taking a more hawkish outlook on things, I would expect maybe one hike this year if they flip more aggressive, which would hopefully put a stop to the relentless selling against the Dollar and halt the Sterling rally against the Euro, Following Macron’s win in the elections in France we have seen the Euro rise due to the political stability- but there is a long way to go for the Euro to really see some relative strength.
Across the pond, the Fed are expected to raise interest rates by 50bps in May- with the Fed on it’s blackout currently we will not hear from any members but it does seem this move is now priced in, given the recent drop in the U.S stock market- so the main focus will now be on which other hikes are expected through the year.