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The Bank of England was not moving on interest rates (William Barton / Shutterstock.com)
Sterling hit new heights yesterday with the Bank of England’s interest rate decision and has been boosted again this morning by retail sales data. It is currently at its highest level against the US dollar since March 2022 and against the euro since August 2022.
With the US Federal Reserve cutting aggressively the day before, the Bank of England’s clear refusal to budge on rates (with an eight to one vote from the Monetary Policy Committee) and no indication that it will next time either, sent money pouring in to gain the UK’s higher interest rates and sending the pound higher.
Andrew Bailey, governor of the BoE, said that: “Underlying inflation pressures continue to ease, but the broad data flow suggests little need for urgency.”
Sterling was already riding high after the US Federal Reserve’s half a percent cut on Wednesday boosted share prices. The pound and global stocks tend to move in tandem.
This morning two data sets appear to show a different picture from each other. Retail sales in the UK grew in August by 1%, more than double expectations. Taking out fuel, that represents a 2.5% growth in the quantity of goods bought in the past year.
However, we also heard that UK consumer confidence fell in September to its lowest level in six months. The markets are taking this as the new Labour government’s austerity message cutting through, with tax rises expected in the budget next month.
Is that mood cutting through to business? On Monday we will hear a ‘flash’ reading for the Purchasing Manager’s Index (PMI), across the western world, and will be able to compare the UK, which has been bullish in recent months, with the more pessimistic outlook from EU and US businesses.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 3918 7255 to get started.
GBP: Pound buoyant, but consumers feel the chill
The pound hit its highest level against the euro and US dollar since mid-2022 yesterday following the Bank of England’s interest rate decision at midday.
There were two more high-level data sets this morning. Retail sales in August leapt ahead of expectations, growing by 1%, but the GFK consumer confidence reading fell to its lowest for several months. Next week we will see a reading from the business side of the equation, with S&P Global PMI readings on Monday.
GBP/USD past year
EUR: Euro bounces back against dollar
The single currency staged something of a comeback yesterday against all but sterling, battling to another third of a cent gain against the US dollar, taking EUR/USD close to 1% stronger on the week. We are getting some consumer confidence readings from the eurozone today, with France’s just revealed to be holding steady.
Next week hits the ground running with PMI data across the eurozone and a speech from ECB chief Christine Lagarde.
EUR/USD past year
USD: Losses continue after interest rate cut
Following its historic 50 basis point cut this week the dollar continued to come under pressure. Another 0.6% was added to its losses against sterling yesterday, and over the last week there were more than 1% losses against the krone and Australian and New Zealand dollars too. We’re coming into a quietish period for data, apart from the PMI readings on Monday.
USD/GBP past year
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