Tuesday, 12 April 2016

Pound gains more than 1%, but will it last?

It's been a pretty good start to the week for the Pound, rising a little over 1% against both the Euro and the US Dollar. First thing on Monday morning, Sterling was trading at a 2 year low against a basket of other currencies, but the last few days has pushed it higher. Below shows how GBP/EUR has moved so far this week:


What caused the Pound to rise?


The reason Sterling has gained is firstly yesterday's performance of EU stocks. They rose very nicely when markets opened yesterday, and this in turn pushed currencies higher that move in tandem with riskier assets. The Pound is seen as a risky currency, so as investors were buoyed by rise in EU stock markets, they started trimming bets against the Pound and there was a push to buy Sterling while it was at a 2 year low.

Secondly, the inflation numbers this morning were slightly higher than forecast, giving Sterling another nudge upwards, pushing GBP/EUR rates almost 2 cents higher than the lows of early Monday morning.

Will it keep rising? It's unlikely. I don't think this is the start of a sustained recovery, more a slight lift due to risk sentiment. The underlying reasons the Pound fell 4 cents in the preceding 10 days remain, and I think this is a short term spike. Those that need to convert Sterling to another currency may wish to consider taking advantage of this spike to the upside.

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