Friday, April 1, 2016

The Gimlet Eye: A sterling glimpse of the future



The euro has been leading the pack this week, sterling in second place and the US dollar lagging behind as cautionary words from the head of the Federal Reserve seem to put pay to further increases in US interest rates any time very soon. The UK vote on its membership of the European Union seems too close to call, putting pressure on the pound as it falls to fifteen month lows against the euro.



It’s been a mixed week for sterling, with surprise gains against the US dollar overshadowed by a plunge back to the lowest level in 15 months versus the euro.With a UK bank holiday on Monday, subdued trade volumes allowed sterling to make limited gains across the board, and the British currency continued to see positive movement against the US dollar, pushing to a one-week high as Federal Chair Yellen was cautious about reviewing interest rates due to lingering low inflation in the US. 

Despite seeing a slight downturn on Thursday against the dollar, sterling heads into Friday in a relatively strong position against the American currency, thanks to a better-than-expected UK economic growth figure of 0.6%. Sterling saw a less positive performance against the euro, however, with a fresh poll putting the campaign to leave the European Union neck and neck with the campaign to remain. Coupled with broad euro strength, this sent sterling into negative territory against the single currency.

Today sees the release of the purchasing managers’ index (PMI) for manufacturing. Following a recent run of weak growth data over the past few months, any unexpected increase could provide a welcome boost for sterling.

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