Sterling – Oops…..Looks like Bailey did it again…….

Sterling – Versus the Euro

In our report last week, we spoke about potential green shoots in the UK economy –as a number of positive economic data points compounded some sanguine developments with the Northern Ireland Protocol. All of the above had allowed the Sterling to appreciate, particularly versus the Euro over the course of last week and into the start of this week, taking us below the 0.8800-0.8790 zone in EUR/GBP or above the 1.1400 level in GBP/EUR terms – for the first time since mid-January.

With a large portion of the market still very bearish on the UK, we went into this with high hopes that improving economic sentiment may begin to change minds. This week’s key risk event was a speech by the Governor of the Bank of England, Andrew Bailey and unfortunately, he did not read the new wave of optimism. In fairness he did not deviate massively from his speech following the interest rate decision by the Bank of England in Feb – however, he failed to fuel any of the newfound optimism the market was feeling from last week and firmly halted any further appreciation of the Pound versus the Euro or the Dollar –

Weekly Chart of EUR/GBP – Trending nicely lower until Bailey’s Speech on Wednesday –

 In GBP/EUR terms – trending nicely higher – until the Central Banker dampen the parade

So what did he say?

As we mentioned above, it was not wholly his fault – he very much towed the party line from the interest rate meeting in early Feb – the issue here is the markets have moved on and during the month of Feb, we had seen a significant repricing of global interest rates – ie the market is now looking for interest to rise more than they had expected in Jan of this year. So it was Bailey’s comments or lack of future interest rate hikes that caught the market wrong-footed. UK bonds were looking for a more hawkish tone from the Governor and when he did not deliver they began to price out interest rate hikes and we saw a subsequent sell-off in the Pound. The issue here is the market is certainly not in the same place as it was pre-Feb’s MPR, given the impressive re-pricing we have seen throughout Feb.

So we are back down at the bottom of the recent range in Sterling versus Euro and all last week’s hard work is undone. We now have to wait and see what March brings and whether we can keep the momentum up in the recent positive set of UK data.

Treasury First does not guarantee the accuracy or reliability of the information in this message, and any views expressed are not necessarily the views of the company.

Treasury First is powered by Assure Hedge (UK) Limited, a company incorporated in England and Wales (No.10723112) with its registered office at 45 Eagle Street, London WC1R 4FS, UK, is authorised and regulated by the Financial Conduct Authority of the UK (FRN:783837). Assure Hedge Limited, the parent company, is incorporated in Ireland (No. 578153) with its registered office at Dogpatch Labs, CHQ Building, North Wall Quay, Dublin 1, Ireland.