Neil Davies, Head of Trading at PlutusFX, comments on a busy week
Mark Carney’s speech at last night’s annual Mansion House dinner has had a significant impact on Sterling. GBP/EUR now sits above 1.25 – its highest level since November 2012 – and GBP/USD is at 1.6970, toying again with the 5 year high it hit in May.
In his own Canadian way, The Bank’s Governor told us that rates will be going up this year, not next as the markets were expecting. He also reassured us that any rises would be gradual, given that there is still spare capacity in the economy.
House price inflation has been all over the media of late, and it seems this is the main driver (as ever in the UK), with the Chancellor also confirming he will be giving the Bank new powers to prevent the housing market from overheating.
There is, though, already evidence of the housing market already cooling, with potential buyers now baulking at ever increasing prices. The other factor is oil. The new civil war in Iraq has had a big impact, sending prices up 6% just this week. That’s a scenario that will most likely get worse before it gets better, although what ‘better’ is defined as in the Middle East is a moot point at best.
Given that a UK interest move for this year is now factored in to the current levels, the housing market perhaps already cooling and now increasing oil prices potentially having a slowing effect on the world economy, those who have Sterling to sell over the course of the year may wish to take advantage of locking in a forward rate now while Sterling remains strong, rather than take a risk on a future pull back.
