Sterling hits 2-month high v Euro
It's not often we miss sending out the market reports, but on Thursday & Friday last week we had our busiest days for trading £-€ since the pandemic began. Overseas property buyers are out in force at the moment and lucky for them, are exchanging at one of the best times in the last 19-months. Thankfully, we chose to sit on the fence this month in terms of guessing where the £ might go, as if we were pushed for an answer, it would have been a negative one for where Sterling was headed.
Anyway, a full week of the month under our belts and we have a clearer picture of where Sterling is at and £-€ rates just may have turned a corner. Whilst investor sentiment and the stock market will continue to drive £ against the safe-haven currencies, versus the €, it may be a different story. Sterling is being pushed higher against the Euro and rather easily so far. Over 2% has been made since the beginning of the month and the latest foray above 1.17-mid-market, looks like it may stay for a while yet.
The market is fixated on inflation and interest rates and all the news at the moment is that the BoE are ready to raise rates to curb high inflation. Economists are suggesting there is now a 90% chance of a rate increase by year-end, rather than early 2022. Clearly traders are pricing in the 'rumour' now, rather than waiting for the 'fact' of when it is confirmed. Recent comments by MPC members suggest a rate rise is imminent, so the next BoE meeting is a real market mover.
As a currency firm that has seen it all, we remain grounded that the recent gains could easily be wiped out by new headwinds facing the UK. However, it's hard to not get excited that right now is a strong moment for £-€ rates and the near-term could get even better still. Whilst hiking rates has its downsides and risks, it also raises returns offered by financial assets. Therefore, we should see significant investment into the UK and subsequently less investors looking at buying/holding € assets.
This week, we have a few important data releases to watch out for, especially in the next couple of days. UK jobs figures will be important next month now that the furlough scheme has ended, but this month we are expecting more good numbers with an increase in jobs created. UK GDP is the main data release and should show a mediocre rise for August, so we expect Sterling to carry on the recent good form.