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Both chancellor and Bank of England governor urged closer ties with Europe
Sterling has reached the end of the week slightly down against the euro and 2.5% down against the US dollar.
The euro has weakened by a similar amount against a resurgent dollar, which is stronger by at least 2% against most major rivals.
Its strength has come from myriad sources, including positive and potentially inflationary economic data that prompted a hawkish response from Federal Reserve chair Jerome Powell, who said the USA’s “remarkably good” economic performance “is not sending any signal that we need to be in a hurry to lower interest rates.”
But what of the UK’s economic performance? This morning Gross Domestic Product (GDP) was announced as falling by 0.1% in September to a quarterly rise of only 0.1%. This was slightly below expectations.
At least the housing market seems to be on the rise. This morning’s GDP data showed the best growth in the construction sector, and yesterday we heard the RICS House Price Balance was at +16%, its best since before the mini budget in September 2022. It’s only the second clearly positive reading since then and shows that a majority of chartered surveyors believe that house prices are going to rise this year, with particularly high expectations for the next three months in London.
Europe’s economic revival is strengthening, with quarterly GDP rising by 0.4% between July and September, its best for two years, and with Germany avoiding a recession. Other countries improving their economies in Q3 were Ireland, Spain and Cyprus, while France remained strong.
Yesterday the Bank of England (BoE) governor called for the UK to build relationships with Europe. Andrew Bailey said that Brexit had weighed on the UK’s economy: “we must be alert to and welcome opportunities to rebuild relations while respecting the decision of the British people,” possibly referencing potential trade headwinds with the re-elected Donald Trump’s America.
Chancellor Rachel Reeves took the same tack, saying: “We will not be reversing Brexit or re-entering the single market or customs union but we must reset our relationship.”
Within America, however, the FT reports this morning on a business bonanza “as investors bet that tax cuts will boost profits”. Businesses such as Caterpillar and Goldman Sachs have borrowed more than $50bn this week.
One European company licking its wounds from its American dealings is Just Eat, the food delivery business/app, which appears to be swallowing a $6.5bn loss after selling the US company Grubhub which it bought during the pandemic home delivery boom.
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 Business Account manager on 020 3918 7255 to get started.
GBP: GDP fall threatens sterling
Sterling has slipped further in early trading this morning, particularly against the euro, as markets consider the decline in GDP in September. Next week the data ramps up, with inflation on Wednesday.
GBP/USD past year
EUR: Euro’s losses bottom out
The single currency has recovered a little after its post-US election decline, but EUR/USD is still 3% than a month ago. The week ends with final inflation results in some euro economies, including France and Italy.
EUR/USD past year
USD: December rate cut doubts
The dollar has been all-conquering again this week, with economic performance looking good. Will the USA’s economic data continue to point away from an interest rate cut in December? This afternoon there will be retail sales data to look at as we approach Thanksgiving, and the Black Friday sales that follow it in two weeks.
USD/GBP past year
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