Unfortunately, the Christmas spirit has not crossed over into the currency markets. More specifically for the Pound, it has been a tough week, with it losing considerable traction against the USD and the EUR. This comes following a split vote in the interest rate decision last week. Two BOE officials voted against the 50bp hike, instead believing that no hike was needed at all, voting for the base rate to remain at 3%. This dovish response, coupled with the more hawkish responses of both the Federal Reserve and the ECB, has meant that we have seen Sterling’s recent gains almost completely wiped out. The Sterling has dropped back 2% against the EUR in the week that has followed. It seems as if, once again, the indecisiveness from the BOE that has plagued the Pound all year long, will continue to hold the GBP back well into the new year.

Focusing on the US economy, the US Dollar has exacerbated the indecisive actions of the BOE and piled pressure onto the GBP this week. We have seen positive sentiment within employment data, consumer confidence and even an upswing in the housing market this week. It may now be difficult for the Sterling to regain the highs, seen over the last couple weeks. Perhaps of most surprise, was the revised GDP data, which saw it rise to 3.2%, up from 2.9%. Considering the prelim result was better than expected anyway, the Fed must be very pleased with the readings seen this week. Sterling’s only real opportunity this week and next to see major gains on the cable would have been today’s Core PCE Price Index (the Feds preferred tool for inflation). However, with it coming in as forecast, it will now be difficult to envisage major gains before the new year.

Looking ahead into the new year, the Sterling is still viewed as a potential over-performer, but it will certainly be difficult for them to achieve this until at least Q2, with the latest forecasts from Morgan Stanley stating they expect the GBP/USD to be trading around 1.13 by the end of the first quarter. If their predictions come to fruition, it will be another difficult year for the Pound against most major pairings. However, with volatility being extremely high over the last few months, forecasts seem to change nearly daily, and this means that there should be opportunities in the new year to secure a favourable rate. It just might make it evermore important to capitalise on the market whilst the rate is there.