Sterling up against emerging market currencies as commodity prices hit new lows

Enrique Díaz-Álvarez16/Nov/2015Currency Updates

Sterling was the best performing major currency last week, with strong gains against the US Dollar and emerging market currencies across the board. This came on the back of relatively strong labour data that painted a mixed picture of the UK labour market and raised further questions over when the Bank of England would begin hiking interest rates.

G10 currency markets were mostly quiet last week, in the absence of major economic releases or monetary policy decisions. However, there have been a few developments in the markets that UK and European businesses should watch carefully.

The Euro fell to a fresh seven-month low against the US Dollar as further weak economic data continued to increase expectations that the European Central Bank would be increasing its monetary easing early next month. This, in our view, should continue to place downward pressure on the single currency in the long term.

Poor Chinese data and a generalised flight from risk again also brought falls in stocks and commodity markets worldwide, and some emerging market currencies continue to post losses. This pushed the US Dollar to new multi-year highs in trade-weighted terms.

Major currencies in detail:


The main news last week in the UK was the release of the labour market report. The report was somewhat mixed, although currency markets chose to focus on the positives and sent Sterling higher for the week.

Unemployment fell again, to 5.2%, and there were solid gains in net jobs in September. However, pay growth decelerated to 2.8% from 3.2% annualised. This is still solidly above core inflation, but the deceleration, together with the lack of import price pressure thanks to Sterling strength, means that inflationary pressures remain subdued at best.

The BoE may use this data to delay hiking interest rates. Wobbly financial markets worldwide are a new worry for the BoE, and we expect no interest rate hike until the summer of 2016 – although rate markets are pricing in even further extensions to this timetable.


The steady stream of disappointing Eurozone data continued last week and, in our view, seals the case for further ECB easing at the central bank’s December meeting.

Third-quarter Eurozone GDP grew just 1.2% in annualised terms, below already very modest expectations of 1.6%. Weaknesses in German industrial production, even before the full effects of the Volkswagen scandal are felt, do not bode well for the last quarter of the year.

Also, a new political front has opened in Portugal, where a coalition of left parties will govern on the basis of an anti-austerity platform.

We see no outlet for the Eurozone economy except continued competitive devaluation of the currency, and have consequently revised downwards our expectations for the Euro – we now forecast parity with the US Dollar to be reached sometime in early 2016.


The US Dollar index reached its strongest position since April early last week, as investors continue to expect an interest rate hike by the Federal Reserve in December, even amid relatively mixed economic data released across the pond last week.

US retail sales in October were somewhat weaker than expected, growing just 0.1% on the month and 0.2% when stripping out vehicle and gasoline components. This modestly disappointing news was somewhat offset by improved consumer confidence and inventory data.

Overall, the data was consistent with the story we expect out of the US: Steady growth in the 2-3% range, continued job creation and sufficient cover for the Fed to commence raising interest rates in December. We also foresee the Fed continuing to hike at a rate of roughly 0.25% per quarter.

This should allow for a gradual appreciation of the US Dollar against most G10 currencies.


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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.