Morgan Stanley is the latest investment bank to downgrade the Pound.. |
GBP |
Short term price action has been relatively uninspiring of late, but not necessarily a bad thing. A weekly trading range of just 0.5% is extremely calm for this market and comes at a time where GBP is overall performing very well. £-€ remains at one of the best times since 2022 and £-$ is at the best time since 2021. For the latter pair, the overwhelming majority of analysts see both a higher short and long term future. For the former pair, it's much more complicated.. Morgan Stanley is the latest investment bank to release research suggesting another UK confidence crisis crash is on the horizon. Back in January, the Pound slumped due to rising bond yield prices breaking investor confidence in the governments handling of debt. The UK has a greater debt-to-GDP burden than both Germany and the US currently. Both countries are about to 'splash the cash', whereby they issue new debt to fund spending. This will create a new problem for Chancellor Reeves who is already battling a premium one as it is. For now, the UK's high interest rate (relative to most of the G10 countries) is almost single-handedly bailing out the Pound. Foreign investors seek out high returns and that is where the UK is placed currently. But this will come to an end at some point and as the divergence decreases, so will GBP. The UK offers up labour and GDP data this week, both have the chance of creating some volatility in what is a quiet week overall. EUR As expected last week, the ECB cut interest rates. Also as anticipated was President Lagarde's comments of 'we have nearly concluded this run of interest rate cuts'. 2% was the central banks rate target with the same number for inflation and both are now there. Lagarde went on to comment the EU is "well positioned" and "in a good place". The pace and consistency of rate cuts has weighed on the Euro for more than a year and this differential is about to be flipped into its favour. This news mixed with a stronger safe-haven status is why some data-houses see £-€1.11 by year-end.. USD The USD remains under pressure even though it posted a stronger than forecast employment report last Friday. However, the fallout from tariffs is far from over and the US economy is slowing. This weeks inflation data will help shed some light on whether President Trump get's his desired lower interest rate sooner rather than later. |