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It's been an up and down week for sterling
Sterling has taken a dive since the budget, dropping around 1.25% against the euro since Wednesday morning and 0.5% against the US dollar.
The reaction to the budget, as often happens, took a while to coalesce but 36 hours later the sell-off of government bonds has pushed yields and sent UK borrowing costs to their highest level this year.
The budget is not the only reason for sterling’s fall. GBP tends to follow the follow the stock markets, and yesterday saw a significant sell-off of tech stocks on Wall Street. Shares in Microsoft dropped by 6% and in Meta by 4%.
However, bearing in mind the reaction from some quarters to Labour’s first budget for 15 years, the reaction on the currency markets has been muted compared to, say, the Truss/Kwarteng mini budget of two years ago. GBP/EUR remains 3.3% up on last year and GBP/USD more than 6% stronger.
Losses may have been pegged back by the belief in the markets that the chancellor’s spending splurge – and its potential impact on raising inflation – will limit the Bank of England’s options for interest rate cuts in the longer term.
In other news yesterday, there was some interesting data from the eurozone, including inflation higher than expected at 2% in the bloc and German retail sales leaping upwards much higher than expected. This followed yesterday’s positive consumer sentiment index in Germany yesterday, and much improved GDP the day before.
France’s inflation rate also increased slightly, to 1.2%, while Spanish tourist arrivals leapt upwards by 9.1% compared to 2023 to show the highest September tourist numbers since records began 30 years ago.
We’ve just had the new Nationwide house price index, which showed UK property prices still rising in October but at a slower rate, just 0.1%.
In business news, there was an interesting report from Germany’s largest health insurer pointing out that the country’s workers took an average of 19.4 sick days in 2023, contributing to its recent economic downturn.
The budget was only the first of the three big events for the currency markets and all eyes now turn to the US election on Tuesday, which could not be more finely balanced. After that comes the interest rate decision on Thursday, for both the UK and US.
With all this in mind, 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’s drop halts for now
Sterling starts November just over 1% down on the start of October against the euro but with no further losses so far this morning.
Later today there will be a final reading for S&P Manufacturing PMI, which on the first reading had slipped significantly compared to the previous month. Next week starts relatively quietly for data, leading up to the all-important interest rate decision on Thursday.
GBP/USD past year
EUR: Mixed day for euro
The single currency has had a positive week, and not just against sterling. There have also been modest gains against the US and Australian dollars. On Monday there are final PMI results in the eurozone.
EUR/USD past year
USD: Markets look to employment data today
After a decidedly mixed day for the dollar yesterday, this afternoon we’ll hear the Non-Farm Payrolls result – will it follow the JOLTs job openings in showing a weakening labour market? Next week starts quietly, though there is ISM Services PMI on Tuesday. However it all pales into insignificance compared to the election, the result of which we should know early on Wednesday, or possibly won’t.
USD/GBP past year
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