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The markets saw red for sterling yesterday
The pound saw its biggest single day fall in 18 months yesterday, dropping by around 1% against the euro, US dollar, rupee and renminbi. However, there has been no further weakening this morning so far and GBP remains 9% stronger than USD compared to this time last year and 3.25% up on EUR.
The cause of yesterday’s drop was an interview that Bank of England (BoE) Governor Andrew Bailey gave the Guardian newspaper, where he strongly hinted at imminent interest rate cuts.
The markets now expect the BoE to cut rates by half of one percent by Christmas. However, one hold out from the BoE’s cut in August was its chief economist Huw Pill, who has consistently voted against rate cuts. He will be speaking shortly. Does he remain hawkish on interest rates or will he follow his boss to more cuts? Sterling has rebounded slightly so far this morning, but will that last?
Bailey said he was monitoring the continued violence between Israel and Iran in the Middle East. As the price of oil rose by around 5% to $77.62 per barrel, he said: “Geopolitical concerns are very serious… control could break down if things got really bad. You have to continuously watch this thing, because it could go wrong.”
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Elsewhere, in a hectic day for data, there was a surprise to the positive for ISM services PMI in the USA, which soared to 54.9 in September, far ahead of expectations and its best for 18 months. The dollar climbed on the news against almost all other major currencies.
Later today we’ll hear Non-Farm Payrolls in the US, one of the most influential pieces of data in the financial calendar for exchange rates.
On Wall Street, there are reports that US presidential candidate Kamala Harris has been winning back support from business leaders who had been turned off the Democrats by President Biden’s suspected hostility to business. With one month to go to the election, you can read an analysis of what a Harris or Trump win could mean for exchange rates, alongside currency predictions from the major banks, in our new Quarterly Forecast – watch out for it in your in-box next week.
There was potential good news in the supermarket, as a drought that had severely affected Spanish olive trees, helping to almost treble olive oil prices in five years, seems to have broken. The Andalusia region, responsible for a third of global output, expects the olive harvest to be 77% up this year.
GBP: Markets await Pill comments
After comments from the governor of the Bank of England sent sterling down by its biggest one-day drop for 18 months yesterday, there will be keen interest in what BoE’s chief economist Huw Pill says this morning.
Next week starts with some house price data from the Halifax. Prices shot up by 4.3% in the year to last month, but they are predicted to have moderated sharply this month.
GBP/USD past year
EUR: Mixed fortunes for euro
It was a mixed day for the single currency yesterday, with the BoE following the ECB in warning of more interest rate cuts.
We are awaiting construction figures across the eurozone, plus comments from several ECB interest-rate setters.
EUR/USD past year
USD: Will jobs data change direction for Fed?
The US dollar continued to gain yesterday, as the chance of a 50-basis point interest rate cut in a month’s time receded. The gain was more than 1% against sterling but was also significant against the Australian dollar too.
This afternoon we’ll get Non-Farm Payrolls, which is often a game-changing data point on the first Friday of a month.
USD/GBP past year
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