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Weekly Roundup: Pound rallies stymied by cost-of-living concerns

currency-newsWeekly Roundup: Pound rallies stymied by cost-of-living concerns
The pound got off to a robust start last week, with the currency appearing to benefit from a technical correction, after plunging the previous week in a Bank of England (BoE) driven sell-off.

This uptick in Sterling remained in place through the first half of the week, despite the lack of a clear catalyst.

However GBP exchange rates then came plummeting back down to earth with the publication of the UK’s consumer price index. February’s CPI figures reported domestic inflation rocketed to a 30-year high of 6.2%.

In light of the BoE’s recent dovish forward guidance and its apparent reluctance to continue hiking interest rates, the surge in inflation proved to be a liability for the pound.

Alongside the publication of a disappointing Spring Statement from Chancellor Rishi Sunak, the inflation release gave rise to fresh concerns over the UK’s cost-of-living crisis. In its accompanying economic forecasts Office for Budget Responsibility (OBR) warned living standards in the UK are set for a historic fall:

‘With inflation outpacing growth in nominal earnings and net taxes due to rise in April, real livings standards are set to fall by 2.2% in 2022-23 – their largest financial year fall on record – and not recover their pre-pandemic level until 2024-25.’

The second half of the week then saw the pound remain muted on the back of mixed PMI figures as well as a shock contraction of retail sales.

Turning to this week, the only GBP data release of note will be the UK’s latest GDP release. The final estimate for the fourth quarter is expected to confirm the UK economy expanded by 1%, but could a surprise to the upside offer support to the pound later this week?

In the meantime, Sterling may face an uphill battle as the UK’s cost-of-living crisis remains a key focus.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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