CURRENCY OUTLOOK: POUND SOARS ON BOE RATE SPECULATION, EURO SUPPORTED BY ECB RATE HIKE

positive trajectory as we entered the second half of the month, supported by USD weakness.

The focus for EUR investors will now turn to the Eurozone’s latest inflation figures. June’s preliminary CPI figures could be key in gauging the ECB’s appetite for further hikes. Could another sharp drop-off in inflation push the bank to end its hiking cycle in July?

Pound

GBP/EUR: Up from €1.15 to €1.16

GBP/USD: Up from $1.24 to $1.27

The pound enjoyed strong support in recent weeks, with Sterling sentiment being underpinned by Bank of England (BoE) interest rate speculation.

Expectations for higher rates were turbocharged after UK inflation ran a lot hotter than expected in April. Particularly core inflation which unexpectedly rose to a new 31-year high.

The pound climbed to new multiyear highs against the euro and US dollar in mid-June after BoE rate hike bets were compounded by the UK’s latest jobs data, following a surprise drop in unemployment and hotter-than-expected wage growth.

Sterling then came crashing back to earth on the eve of the BoE’s June rate decision. Another stubbornly high inflation print stoked speculation the BoE may raise rates as high as 6% and tip the UK into a recession.

These concerns kept a lid on GBP after the BoE surprised markets with a 50bps rate hike.

UK growth fear may continue to act as a headwind for the pound in the coming month, although any losses for the currency are likely to remain limit- ed so long as BoE rate hike bets remain hawkish.

US Dollar

USD/GBP: Down from £0.80 to $0.78

USD/EUR: Down from €0.92 to €0.90

The US dollar weakened over the past month. Demand for the currency faltered amid improving risk appetite and speculation regarding potential policy divergence between the Federal Reserve and other major central banks.

At the end of May, the US dollar was still in a position of strength. Concerns over the US debt ceiling saw investors favour the safe-haven currency.

The passing of a deal at the start of June saw the US dollar stumble, before a stronger-than-expected US payroll print provide one last burst of support for the ‘greenback’.

USD exchange rates subsequently declined as a broadly upbeat market mood sapped demand for the safehaven currency.

The downturn in USD was also driven by speculation the Fed is close to ending its hiking cycle. While the Fed struck a hawkish tone following its decision to leave rates on hold at its June meeting, sharper-than-expected falls in inflation and signs of a weakening jobs market has led to speculation the Fed will stop raising rates before the ECB or BoE.

Looking ahead, upcoming US data releases could have a major impact on the US dollar as they may indicate how many more rate hikes the Fed may pursue.

Leapy Lee Says It

Others Think It

I TRULY am becoming heartily peeved with people writing to remind me that I am ‘also an immigrant’. Usually these informants are new readers and, although I am delighted to welcome them to my scribbles, it also means they have not read a number of my past columns in which I have more than covered this particular subject. So to all the wags who still think they are being clever, and occasionally quite nasty in their observations, I am completely aware that I am ‘also an immigrant’. I am actually quite a proud immigrant.

Many years ago, due to personal reasons (well chronicled in my books), I left the UK and, after some years in the Middle East, moved to Spain where I have resided for the last 40 years.

This country has been good to me. It has educated four of my children, two of which have married Spanish locals, and my knowledge of the language is moderately passable.

I originally brought some £50,000 into the country (which in 1983 was