The pound is on track for its largest weekly fall against the yen in a year as investors flock to the Japanese currency following hints of a change in monetary policy from Tokyo. Sterling is also set for its worst weekly performance against the dollar in a month, but remains strong against the euro. The yen has seen a significant increase in value against higher-yielding currencies such as the pound and the New Zealand dollar.
This week, trading has been largely influenced by rate expectations, particularly in Japan. The yen has risen across the board, and the pound has suffered as a result. The next significant event for the markets will be the release of the US employment report, which is expected to show an increase of 180,000 workers in non-farm payrolls in November.
Sterling closed at $1.2564 on Friday, down 0.3% for the day. Against the yen, the pound was up 0.3% at 181.15, after experiencing a fall of nearly 3% on Thursday. This decline puts the pound on track for a weekly drop of 2.8% against the yen, marking its largest fall in a year.
Looking ahead, major central banks, including the Bank of England, will meet next week to discuss monetary policy. While traders do not anticipate any changes to interest rates from the Bank of England, the focus will be on policymakers’ views on growth and inflation, which could provide insight into the timing of the first rate cut.
According to futures markets, the first rate cut from the Bank of England is expected to occur in June, compared to March for the European Central Bank and May for the Federal Reserve. Money markets suggest that the Bank of England will deliver around 80 basis points in rate cuts in 2024, compared to 140 basis points from the European Central Bank and 122 basis points from the Federal Reserve.
While the UK economy has narrowly avoided recession and inflation is receding, there are signs that the Bank of England’s series of rate rises has impacted consumers and businesses. Analysts warn that any downward revisions to the path for UK rates could result in sustained weakness for the pound. Gareth Gettinby, an investment manager with Aegon Asset Management, stated that the potential for the markets to price in earlier rate cuts is the key negative factor for sterling in 2024.
Despite uncertainties surrounding interest rates, the pound has performed well against the dollar this year, ranking as the G10 second-strongest performing currency with a gain of 3.9%. This gain is largely due to the weakness of the dollar rather than demand for the pound. Against European currencies, sterling has remained relatively steady against the euro in the fourth quarter and has seen slight gains against the Swiss franc and the Swedish crown. The pound has also strengthened by around 4% against the Norwegian crown due to falling oil prices, which have negatively impacted Norway’s economy.
More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )