020 7898 0500Sterling broadly strengthened over the course of yesterday, as global markets opted for a more optimistic outlook on China’s economy. However, that was reversed this morning against the euro following earnings data that has worried the markets.
However, the pound has continued to strengthen against the USD.
Employment and earnings data from the UK this morning offered a mixed picture, with a surge in new jobs (almost 300,000 new jobs in April being one of the highest monthly jumps on record) but earnings rising at far below inflation.
Against EUR, any positive options for Christine Lagarde, President of the European Central Bank, appear to be running out as she faces having to raise interest rates to beat inflation just when the eurozone faces a recession.
On that subject, one of the Bank of England’s interest rate setters, Sir Michael Saunders, struck a hawkish note in his last speech as a member of the BoE’s monetary Policy Committee (MPC), saying that he hoped interest rates would rise sooner rather than later. He said it was “not implausible that they would reach 2% by the end of the year, from the current 1.25%.
This afternoon we will be hearing from the governor of the BoE himself, Andrew Bailey.
In the latest round of the Conservative leadership election, Rishi Sunak came out on top again, and as expected Tom Tugendhat was eliminated from the contest. The next round is this afternoon.
On the garage forecourts, despite the weaker dollar pushing up oil prices, the AA has suggested that an average tank of petrol could cost £10 less by the end of July.
Elsewhere in the economy, both Deliveroo and Netflix have been suffering falls in revenue as the cost of living hits discretionary spending.
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GBP: Key data offers mixed picture
Sterling was supported through much of yesterday, ending the day close to 1% up on the day against the US dollar and at one point hitting $1.20. Against the euro gains early on had all but disappeared by the end of the day and that has continued this morning, with a severe drop.
The first of the week’s big data releases is already out this morning, with unemployment remaining stable, the number of new jobs leaping, but the bigger story being the largest negative gap between earnings and inflation since records began, exacerbating the cost of living crisis.
Tomorrow it’s the turn of inflation, as well as the penultimate round of the elimination contests for Johnson’s replacement as Prime Minister.
GBP/USD past year
EUR: Boost to euro as global trade worries lessen
The single currency enjoyed a buoyant start to the week, strengthening against its next 20 currencies except for the British pound and Norwegian krone.
This was despite a real lack of data, and is most likely down to positive news on the Chinese economy, which supports so many German industries.
Later this morning we’ll hear about inflation in the eurozone, with the ECB’s interest rate decision coming on Thursday.
USD: Dollar in retreat as ‘risk on’ sentiment grows
It was a quiet day for data in the US but the greenback weakened nonetheless. This was mainly due to an increasing ‘risk on’ sentiment as fears over a Chinese recession lessened following comments from the governor of the Bank of China. Yi Gang said that there would be stronger support for the economy.
There is plenty of housing data out this week, including housing starts today and existing home sales tomorrow. Demand has been slack owing to rising costs and mortgage rates.
There will also be a flash reading for PMI for July, where the markets are expecting something along the lines of last month, at around 52.
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