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The US dollar fell further on Tuesday against its European foes.
The US dollar continued to fall against the euro and the pound on Tuesday, as weak consumer data and an aggressive Federal Reserve siphoned demand to other currencies.
Sterling was again a primary beneficiary. GBP/USD reached a fresh yearly high, while GBP/EUR followed suite before falling in the afternoon. Not to be left out, EUR/USD itself rose by around a half a cent.
There wasn’t too much new data to break the prevailing sense of US dollar weakness. The figures that did arrive didn’t help its case. The US Consumer Board survey registered its largest fall since 2021, dipping below 100 in September — well under forecasts. A handful of smaller manufacturing studies also fell, adding to the dour mood.
That’s not to say the outlook for Europe is particularly rosy. After years of rampant inflation and falling wages, UK household disposable income has now dropped below pre-pandemic levels. Inflation has also resulted in a real-term cut to benefits and other social welfare schemes.
Keir Starmer attempted to put a brave face on it and paint a more optimistic future for Britain at the Labour party conference. Acknowledging that the UK was “broken”, Starmer said his party would embrace the private sector while fixing the fiscal black hole and avoiding austerity. Nobody is in doubt as to the scale of the challenge.
China unveiled its most aggressive set of economic stimulus measures in years this week. A rare party press conference announced cuts to the benchmark interest rate, as well as targeted measures aimed at shoring up the property market and aiding share buybacks. Global stock markets would later rally as hopes of a Chinese comeback spread.
The Reserve Bank of Australia announced its decision to hold interest rates at 4.35%. The policy board noted that it did not expect inflation to return to its 2-3% target within the next year.
Fears of an escalating conflict in the Middle East is driving up the price of major oil indexes. As Israeli strikes continue to batter Lebanon, Brent Crude and West Texas Intermediate have both climbed by almost 5% since last week. However, this has still only partially reverse heavy losses from early September.
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GBP: Bailey “encouraged”
Bank governor Andrew Bailey yesterday said he was “encouraged” by recent progress over inflation. After holding interest rates at its last meeting, Bailey may well be beginning the long process of preparing markets for another cut this year.
GBP/USD: the past year
EUR: Business conditions worsen
The German Ifo Business Climate study fell slightly from 86.6 in August to 85.4 this month. That is now the lowest read since January and another ominous sign of economic trouble for the euro.
GBP/EUR: the past year
USD: Outflows dominate
With risk appetite relatively resilient, the US dollar found itself suffering outflows as investors seek out other currencies. As we’ve seen in the past, it doesn’t take much for markets to get spooked and swing back towards this safe haven.
EUR/USD: the past year
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