Luke Trevail, a currency exchange specialist at forex brokers TorFX, looks at the factors driving the pound’s exchange rate this week.
With the Rio Olympics in full swing, Sterling was looking at its own Triple jump competition this week as three key data releases were scheduled that could hurtle the pound to victory or send it crashing further still We closed Monday’s session down at a fresh 3 ½ year low and saw prices dip briefly to €1.1385.
Tuesday morning saw CPI Inflation figures being released. They showed a rise in July of 0.6% from 0.5% in June. Rising fuel prices and the weak pound were both contributing factors to this and although the figure is well, well below the 2% target set out by the Bank of England, it’s encouraging to see a step on the right direction particularly when this is the first reading since the June EU referendum results. Sterling reacted to this data and found some common ground around €1.15. Bronze medal position.
On Wednesday we had UK Unemployment data which showed that in the three months to June the overall number of people out of work remained steady at 4.9%. Crucially however the numbers of people claiming unemployment benefit fell in July despite Brexit and the uncertainty that this created. These figures were unexpected compared to what the Office of National Statistics first thought and the pound rallied to €1.1580 at the high. Silver Medal in the bag.
Thursday was the big news, UK Retail Sales for July were long being touted as the first key data announcement to give a true picture, albeit it early days, of how the economy was doing in the post-Brexit era. Year on year they rose by 5.9% and were up 1.4% compared to June. The pound rose almost immediately on the news against a basket of currencies, peaking at €1.1640 against the Euro. Gold Medal won.
Before we sing the national anthem and think that the pound is invincible (as if we would!), we have to remember that there is a long way to go before we see any form of recovery following the UK’s exit from Europe and many analysts are suggesting that despite the positive data this week, the move by the Bank of England to cut interest rates earlier in the month along with an increase to their Quantitative Easing package and the threat of a further cut to just above 0% could weigh on the pound’s shoulders further and continued losses may be on the horizon.
Despite the data in the UK being consistent over the Summer months, the same cannot be said for Europe and there is a distinct silence coming from the continent. I suspect that in September when their feet are under the table again that some worrying figures will be coming out, that could weakened the single currency. More on this if it transpires, of course.
For now, however, it’s a difficult race that we find ourselves in moving forward, and you should be prepared for a marathon and not a sprint. Those of you that have a longer term requirement might be okay considering the lows that we’ve seen since this week, for those of you that need to move funds in the more short-term then it’s weeks like this that you need to look out for as opportunities won’t come along every day, a bit like the Olympics I suppose.
This article is written by a foreign-currency broker working for TorFX, a forex broker established in 2004 to provide foreign exchange and international payments to both individuals and companies. TorFX is authorised by the Financial Conduct Authority under the Payment Service Regulations 2009 for the provision of payment services. Their FCA number is 517320. To verify their authorisation, you can visit the Financial Services Register and search the register using their FCA number. SPI is not responsible for the opinions of guest contributors.
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