GBP has enjoyed a strong week over the last 4 days, reaching an 8 week high against the US dollar with continual gains made against the euro, too. The UK appears to be driven by good economic performance, particularly when seen in contrast to how things are doing on the mainland, but it seems, as well, that British shares are performing admirably in addition. The pound’s charm at the moment seems to be that of a safe-haven darling with flows coming in from Europe following a switch by investors to UK-based assets. The uptick has also been driven by the expectation that the BoE will raise interest rates by the beginning of 2016 (or perhaps at the end of this year). With UK salaries on the increase, if interest rates increase as they usually then follow suit, it should only be a matter of time before we see a rate rise.
EUR has continued its downward trend this week with Greece remaining a major point of concern for the commonality. The beleaguered country now awaits patiently for the approval of a 4 month extension of its bailout programme – the Germans, however, are proving hard to convince – their finance minister playing hard ball in insisting that the Eurozone won’t pay a cent until Greece signs on the dotted line in agreeing to adhere to pre-existing bailout agreements. With the Greeks having submitted a list of economic reforms and this then being approved by Eurozone finance ministers, there does exist the risk that some members of the commonality decide that no more money should be thrown at a problem that can’t be fixed like that. This may then have implications as to the amount of time give to Greece to extend its bailout. Aside from the issues in the Med, the supply of gas to the Ukraine, by Russia, may turn out to be a new point of contention as this then could affect flows of gas into broader Europe as well.
With the dollar dropping off against the pound this week, some analysts think that, in addition to GBP’s upswing, this dollar dip was due to happen given the big gains made against sterling last year. New home sales were seen to beat anticipated numbers, but year-on-year growth was revised downwards from 11.6% - 8.1%. Related, US mortgage applications were seen to fall for a third week in a row. More negative US data could see the pound being seen as more and more attractive.
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