Weekly Market Report

Sterling had its best week in months, completing a third consecutive weekly gain against the Euro. The catalyst was political headlines rather than economic data. Reports mid-week suggested that Andy Burnham intends to appoint Shabana Mahmood as Chancellor, a move the markets read as a signal of fiscal discipline. Burnham officially becomes Prime Minister today and his first 72 hours in office will be dominated by Cabinet appointments. UK CPI inflation figures will be released on Wednesday morning which will be closely watched. Although Sterling has strengthened as political uncertainty unwound, some analysts are suggested that the state of the UK’s public finances leaves Burnham very little room to manoeuvre.

US June CPI inflation figures released earlier last week came in below forecasts with the brief US-Iran ceasefire and lower oil prices having an effect on US pump prices. As a result, we saw the Dollar weaken. Kevin Warsh delivered his first congressional testimony on Tuesday and Wednesday but declined to provide forward guidance on the future path of interest rates.

The ECB’s interest rate decision is due on Thursday which will be closely watched. With the ECB having hiked rates recently., the markets are expecting them to hold rates on Thursday.

What this may mean for businesses

Businesses with regular EUR transactions are looking at the highest levels we have seen in over a year. Whether this holds depends significantly on the Bank of England signals on 30th July and Burnhams first Budget signals on fiscal policy.

We have seen a number of clients secure forward contracts at current levels to hedge their risk over the comings months.

Sterling’s recovery seems to be driven more by political clarity rather than economic recovery. Burham’s government will likely face scrutiny early on on fiscal policy and approach to public finances.

We are seeing increased demand for short-term GBPEUR forwards and more enquiries for GBPUSD market orders.