British Pound in a “Sweet Spot” – Hammond Backs Pound Sterling’s Rally vs. Euro and Dollar – PSL

  • Written by Gary Howes

The British Pound’s recent rise is no concern to the Chancellor of the Exchequer Philip Hammond.

Currencies are in focus at the Davos Summit, less than 24 hours after US Treasury Secretary Steve Mnuchin sank the Dollar, his UK counterpart Philip Hammond was seen talking up the Pound.

When put to him in an interview with Bloomberg that “the Pound has been appreciating a lot” Hammond responded:

“The UK is a very open economy and a weaker Pound has two effects, it helps our exports but it raises the costs of our imports and one of the challenges we’ve had  over the last year or so has been that a weaker Pound has lead to higher inflation and stagnant real wages and that is driving some of the challenges we face at home.

“So getting that inflation rate down, and a rising Pound will help to do that, will help to drive increases in wages.”

Asked if there was a ‘sweet spot’ for Sterling, Hammond notes, “actually  over the past few days we have seen the Pound appreciate against the Dollar quite rapidly but its pretty stable against the Euro so we are very happy with the currency at the moment.”

 

On the Dollar – and in relation to Mnuchin’s comments, Hammond notes, “the softness of the Dollar is helping US exports and US manufacturers”.

He says this will help the people of America feel that the global trade system is in fact fairer, in what appears like a tacit thumbs-up to Trump’s America-first policy.

At the time of writing the Pound-to-Euro exchange rate is at 1.1496, its highest level since December 8. The Pound-to-Dollar exchange rate is meanwhile at 1.4249 having gone as high as 1.4328 earlier in the day.

In the short-term, focus will soon turn on the European Central Bank who convene to give their latest policy decision – and how the meeting is interpreted could well set the tone for the Euro over coming weeks. Our coverage of the meeting can be found here.

A Euro-negative outcome to the event presents the Pound with its best shot at breaching the 1.1510 point.

According to Jasper Lawler at London Capital Group, the gains on a break out of the recent range could take the GBP/EUR exchange rate back towards the early 1.20s.

The analyst notes the Pound to be testing “critical” resistance at 1.1490-1.15, and a break above here invites a move to 1.2048.