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Bank of England ( Lois GoBe / Shutterstock.com)
Following a tricky few days for the pound last week around the budget, the week ahead has even more potential pitfalls. The positive news is that GBP/EUR is currently only down on last Monday by 0.7% and there is no loss against GBP/USD.
The dollar was hit on Friday afternoon by the worst Non-Farm Payrolls (NFP) reading for nearly four years, with just 12,000 jobs added in October. That’s a drop from close to a quarter of a million new jobs in September. ISM manufacturing PMI also fell sharply to its lowest for 15 months.
As the NFP numbers may be artificially low due to strikes and two hurricanes, they failed to damage the US dollar as much as might be expected. However, that was the last major economic update in the USA before election day tomorrow, and Trump has been vociferous in claiming that he was better for the economy. Pre-election jitters seem to taking the US dollar downwards, with the US Dollar Index around 0.5% down overnight.
Also coming out on Friday was a deceleration in the speed of house price rises in the UK. The Nationwide House Price Index showed the rate of increase dropping from 0.6% in September to just 0.1% in October. The Nationwide’s chief economist was upbeat, however: “Housing market activity has remained relatively resilient in recent months, with the number of mortgage approvals approaching the levels seen pre-pandemic, despite the significantly higher interest rate environment.”
That interest rate environment is expected to ease slightly on Thursday, with strong certainty in the markets that the Bank of England will cut rates by 0.25%. The next question is, will they cut again at their next meeting just before Christmas? If there are strong hints that they will, sterling could well end the week heading south. However last week’s budget appears to have put that likelihood in further doubt.
In British politics, the Conservative Party elected Kemi Badenoch as leader. After growing up mainly in Nigeria, then working in McDonalds and New Look before studying computer systems engineering at Sussex University, she worked as a systems analyst at the Royal Bank of Scotland and later at Coutts. She became an MP in 2017. Her husband Hamish, incidentally, has worked at Deutsche Bank for 15 years and is listed on LinkedIn as Global Head, Future of Work and Real Estate Transformation.
This week could be the most critical for sterling in a year or two, so 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: Sterling fights back as budget fears subside
Sterling has continued to claw back its post-budget losses and is barely down at all against the US dollar and less than 0.7% down on the euro compared to last week. There is very little on the data front coming up imminently, so the economic dice have been cast already so far as the Monetary Policy Committee at the Bank of England are concerned. We will get an interest rate decision from them on Thursday.
GBP/USD past year
EUR: Strong gains for euro
The euro has been positive in recent days, with ups and downs against the pound but strengthening against all major rival currencies over the past week including as much as 1.5% against the Scandinavian currencies. This morning we have some final results for PMI and on Tuesday senior members of the European Central Bank will be speaking, including its president Christine Lagarde.
EUR/USD past year
USD: Election and interest rate decisions this week
Overall, the US dollar had a successful week against all but the euro, despite Friday’s Non-Farm Payrolls – hot on the heels of JOLTs job opening report – showing a major slowdown in the US employment market. There will be some data midweek, including ISM Services PMI, but it’s really all about the election this week. Following that result (barring recounts and legal appeals) there will be the Fed’s interest rate decision on Thursday, the same day as the Bank of England’s.
USD/GBP past year
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