up up and away currency matters

Up, Up, And Away

Currency Exchange Rate Update

The Pound Sterling was the best performing major currency of the first quarter of 2023. Up against 80% of the world’s currencies and has on average risen in value by 4.75% so far in 2023.

In the first week of May, it has just got better and better, hitting: –

  • Its highest level against the Euro since December 2022
  • Its highest level against the US Dollar since April 2022
  • Its highest level against both the Australian and Canadian Dollars since February 2022.

What’s In The News?

This, despite the result of last week’s local election results in the UK, the last national poll before the next general election which is due by no later than 28 January 2025. Despite the thumping losses incurred by the Conservative party, the Labour share of the vote is down on 2022. It was also the first election in the UK subject to voter ID. Meaning the UK has finally made it 47 European countries out of 47 that require it.

The pollsters are now suggesting we are heading for a hung parliament.

It’s well known that the markets hate political instability above all else so its not going to be plain sailing for the Pound Sterling.

The really good news is that the UK economy continues to confound the doom and gloom merchants with one positive data release after another.

The closely watched UK composite Purchasing Managers Index (PMI) was revised upwards from 53.9 to 54.9 in April. A figure over 50 shows an expanding, growing economy. The growth was solely driven by a resilient services sector growing at its fastest pace in a year. This offsetting the ninth consecutive monthly contraction for the manufacturing sector.

UK mortgage approvals bounced back to a 5-month high in April as the housing market continuing to surprise.

The Nationwide reported that UK house prices grew in April after seven straight months of falls.

Consumer credit growth came in above forecasts too.

The latest UK trade figures show UK exports reaching £815.2 billion in 2022, up 25% on the previous year. This represents the highest export number ever recorded in UK history. It’s nearly 17% higher than the pre-Covid peak in 2019. Some 43% above 2016 levels. Representing a compound average growth rate (CAGR) of over 7% since the 2016 European Union vote to leave. It’s also considerably above the trend since 2010. And confirms the UK as the world’s second largest exporter of services after the USA.

Meanwhile, the UK competition watchdog is launching a review of the artificial intelligence market. This will include models behind popular chatbots such as ChatGPT.

Watch out for the next Bank of England rate decision due on 11 May.

It’s almost a given that they will increase UK interest rates again! But will they follow the lead from the US Federal Reserve and the European Central Bank? Both raised interest rates last week but also signalled a pause in the rate increases. The BoE is normally a follower rather than a leader in these decisions.

Last week, as widely expected the US Federal Reserve again increased interest rates. This time by 0.25% to take the Fed Funds rate band up to 5% to 5.25%.

In the US, data showed a more resilient US economy than was expected by their doom and gloom merchants. With the US economy adding 253,000 jobs in April compared to the expected 180,000 figure. The US unemployment rate also fell to 3.4%, its lowest level since 1969.

In contrast, the US banking sector woes continue. So far this year, we have had SVB and Signature Banks go bust in March. Then Californian lender First Republic was bought by JP Morgan in a rescue deal. Shares in PacWest fell 60% last week after it confirmed it too was looking for help. Western Alliance whose share price fell by 38% last week is also seeking help.

In Europe, the European Central Bank (ECB) raised its benchmark interest rate for the seventh consecutive meeting last week. This time by 0.25% to 3.25% and the highest base rate for 14-years.

Euro zone unemployment is at an all-time low but core inflation at a record high.

At the same time, German factory orders have slumped by 10.7% amidst a 47.4% contraction in orders for miscellaneous vehicle construction.

The banking sector woes has not been limited solely to the USA with Credit Suisse sold at a bargain basement price to arch-rivals UBS also in March when it run into difficulties.

In Australia, the Reserve Bank of Australia (RBA) unexpectedly raised interest rates by 0.25% to 3.85% and signalled the possibility of more rate rises ahead.

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 comes from Frank Zappa

“A mind is like a parachute. It doesn’t work if it is not open”.

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