Pound on a High currency matters

Pound On A High

The Pound has started the new month of June very nicely, at a 2023 high against the Euro. It’s up over 3.5% on the year to date against the single currency.

Against the US Dollar, the Pound hit a 2-week high last week and is up 4.9% so far this year.

It’s even better against the Australian Dollar. Last week, the Pound hit its highest level against the Aussie since January 2022. Up over 8.3% to date this year.

Last week the Pound traded at its highest level since before the Brexit Referendum vote of June 2016 against the South African Rand.

What’s In The News?

The Pound has benefited from the UK avoiding the catastrophic economic scenario painted by the Bank of England (BoE), Treasury and the International Monetary Fund (IMF) last Autumn. These were all forecasting a very deep recession lasting into 2024. Instead, the UK economy has avoided a recession altogether. The same troika were forecasting the UK would be at the bottom of the G7 (the world’s seven largest economies) economic growth tables in 2023. Wrong again! The new forecast is for the UK to outgrow Germany, France, Italy, and Japan, lagging behind the USA and Canada (just).

Last week Goldman Sachs forecast that the BoE would not get UK inflation down to its 2% target level before the end of 2025 because of soaring food prices and a ‘concerning’ rise in wages. The UK inflation rate currently stands at 8.7%, the first time it has been below double figures since August 2022. That heavily suggests that the BoE hasn’t finished with its interest rate raising cycle. UK interest rates are currently set at 4.5%, their highest level since October 2008. The BoE next meet on 22 June to announce their latest interest rate decision. The consensus opinion amongst analysts is for another rise of up to 0.5% and for UK interest rates to hit 5.5% in the next 6 months. A level last seen in December 2007. This makes the Pound more and more attractive to international investors.

Whilst rising interest rates are good for the Pound, it’s not so good for mortgage payers so no surprise that the Nationwide are reporting that UK house prices are falling at their sharpest pace since the financial crisis of 2009. The BoE also reported last week that mortgage approvals fell in April and warned the number of home loans approved this year is on track to fall to its lowest level since the same year.

In contrast, the latest euro zone inflation figures saw a sharper than expected fall to 6.1%. Its lowest level since Russia invaded the Ukraine suggesting the ECB (European Central Bank) may stop raising EU interest rates. The ECB next meet on 15 June. Another factor behind the idea that the ECB may be done with raising interest rates is the fact that Germany, by far the EU’s largest economy, has been in recession throughout winter. Suffering from back-to-back quarters of negative economic growth with the German economy contracting in the fourth quarter of 2022 by 0.5% and falling a further 0.3% in the first quarter of 2023.

The EU could also be in for further political turmoil this summer. Spain having a snap general election scheduled for July after the ruling Socialist Party suffered a resounding defeat in recent local and regional elections. Spain is the EU’s 4th largest economy after Germany, France, and Italy.

If, as some expect, the ECB keep interest rates unchanged and a week later, the BoE raise UK interest rates again, this should further boost the value of the Pound against the single currency.

The financial markets had a very lively day last Friday. Boosted by the news from Washington that the US Senate has approved a fiscal deal to raise the US debt ceiling and cap government spending until the other side of the November 2024 Presidential elections. Thus avoiding the first US debt default in history just four days before the US Treasury forecast it would run out of money.

Then came the announcement that the US economy added 339,000 jobs in May. Almost twice as many as had been forecast in an unexpected sign of strong resilience in the US labour market. The Fed next announce their latest interest rate decision on 14 June. The latest employment data suggest the Fed has scope to continue to raise interest rates in the USA. This could see the Dollar recover some of its recent losses against the Pound.

In Other News…

China’s Carbon Dioxide (CO2) emissions in the first quarter of 2023 was more than the whole of the UK produced in total. Wiping out in just 3 months any ‘benefits’ the UK’s entire net zero programme to 2050 would bring.

Further Good News For The UK: –

  • London has taken the global tech crown from New York according to a recent Z/Yen Group’s Smart Centres Index.
  • The UK has beaten Spain to host a multi-billion-pound electric car battery plant.
  • Children in England are the best readers in the western world. The UK performance rising to 4th place in the international league table.

THE COSMOS OFFER

Of course, currency market volatility can bring trouble but with careful monitoring can also bring opportunity.

At Cosmos, we provide our clients with a relationship not a transaction-based service.

We are pro-active not reactive.

We offer local collection accounts in: the USA; Canada; the EU and the UK saving clients time and money on transfers.

Cosmos Currency Exchange has won multiple awards for its customer service and pro-active approach.

Please call +44 (0) 300 124 6409 or email us to discuss your individual currency requirements.

This week’s quote is from Lyndon B. Johnson

“Yesterday is not ours to recover, but tomorrow is ours to win or lose.”

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