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Will Sterling stay strong after the EU Summit?

Published: Thursday 22 March 2018

  • Sterling sailing along nicely in run up to EU Summit
  • US interest rate increase weakens USD
  • German business confidence lowest for nearly a year
​​By Killian Greenwood

Sterling sailing along nicely in run up to EU Summit

Sterling is enjoying strength against other key currencies following the Brexit transition agreement, but it remains to be see what effects, if any, today’s EU Summit will have on the British currency, as we await the formalising of the Brexit agreement.

Following yesterday’s US interest rate announcement, markets are focused on today’s Bank of England (BoE) rate decision. A more aggressive outlook could boost the Pound. Most analysts and market commentators expect interest rates to remain the same at 0.50% and for the Bank of England maintain the status quo in terms of the asset purchase target of £435billion. Any signs of an interest rate increase in May will strengthen Sterling, although not significantly, as markets have priced this in for the most part.

US interest rate increase weakens USD

Across the Pond, the Federal Reserve did what was expected and increased interest rates, with some Federal Open Market Committee (FOMC) members also projecting four rate hikes throughout 2018, although the overall view of the committee was that only three rate increases would be needed. Despite reassurances from the committee on the strength of the US economic prospects, this had a negative effect on currency markets and caused the US Dollar to weaken against its major currency pairings. We could be looking at further determined monetary policy changes for 2019.

US President Trump plans to announce the trade tariffs on Chinese goods today, although the tariffs, expected to be on 100 Chinese goods – to be confirmed following consultation from US industry –will not be put in place straightaway. This action is fuelling the fire for trade war fears and could continue to weaken the US Dollar.

German business confidence lowest for nearly a year

The German IFO Business Climate Index, a key indicator of the health of the Eurozone economy, was released this morning, yielding disappointing results as business confidence in Germany fell to the lowest for almost a year. Taken alongside other recent disappointing European data, this could spell trouble for the Euro; and for the Eurozone’s economic outlook. The currency markets’ eyes will then turn to the UK to see what rhetoric comes from the BoE and get a sense of direction for Sterling against its European currency partner.
Fridge jokes

I bought my son a fridge for his birthday.

I can’t wait to see his face light up when he opens it.

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR 09:00 EU: Flash Manufacturing Purchasing Managers' Index 58.6 58.1
EUR 09:00 EU: Flash Services Purchasing Managers' Index 56.2 56.0
EUR 09:00 EU: Current Account 29.9b 30.2b
GBP 09:30 UK: Retail Sales 0.1% 0.4%
GBP 12:00 Bank of England Official Bank Rate 0.50% 0.50%
GBP 12:00 Bank of England Official Bank Votes 0-0-9 0-0-9
GBP 12:00 Bank of England Monetary Policy Summary    
GBP 12:00 Bank of England Asset Purchase Facility 435b 435b
GBP 12:00 Bank of England Asset Purchase Facility Votes 0-0-9 0-0-9
USD 12:30 US: Unemployment Claims 226k 225k

For more information, infographics and the latest currency insights, visit www.halofinancial.com/news