Sterling poised to fightback

Hi everyone,

 

The Pound has recovered nicely after its recent woes and I would like to say we should 'kick-on' from here, but as mentioned last week, we will sit on the fence for a bit to see how Q4 starts. Over 1% has been clawed back from last weeks low point though and GBP starts the week in the green across the board.

 

The rally comes after a flurry of variables aid the UK & £ including; month/quarter-starts, energy news, inflation & GDP data. To focus on the main news then and last week the Office for National Statistics upgraded the UK's GDP number for Q2. An increase from 4.8% to 5.4% was a welcome surprise and it means the economy was only 3.3% lower than pre-pandemic levels.

 

Economists reacted to the bullish news by bringing forward estimates of a UK rate hike (early 2022), which increased the Pounds value. Even though growth stagnation is likely to show in Q3 & Q4, the UK is already way ahead of original forecasts. Central banks are the main drivers in this market at the moment and when the BoE raise rates, we will see significant moves in GBP. This will be mainly realised against the EUR, as the ECB are not going to raise rates for a number of years yet. This is why many believe Sterling is massively undervalued at the current prices. 

 

Whilst the US and UK are wrestling high inflation pressures at the same time, there is also interesting inflation numbers in the Euro-Zone. Last week, Germany's inflation rate hit a 30-year high coming in at 4.1%. Meanwhile, the EU's number was 1.9%. How the ECB tackles high inflation numbers in some countries but not others remains to be seen. The task will not be easy, as they have 20+ countries to think about. However, when it comes to their main contributor (Germany), they may have no choice but to act in someway. How the ECB chooses to deal with inflation in the coming months is going to be a market mover for sure.

 

We are very light in terms of economic data this week, so hopefully we will see Sterling continue to stabilize. 

 

 
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