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The pound continued to outperform other major currencies last week.
Sterling’s streak of strong performances continued last time around as data highlighted slowing inflation in France and the US.
Since the beginning of September, GBP/EUR and GBP/USD have each advanced by around 1%. EUR/USD has also had a strong month, although a volatile few days meant a late fall wiped out most of its weekly gains.
The Core PCE US index, often referred to as the Federal Reserve’s preferred method of measuring inflation, fell by more than expected to 2.2% year-on-year in August. As part of the same study, personal income and spending both came in at 0.2% last month, below the forecast 0.3%.
Inflation in France and Spain also fell by more than expected in September, piling more pressure on the European Central Bank (ECB) to announce further cuts to interest rates. Headline French inflation dropped to 1.2% in September and 1.5% for Spain, far below the ECB’s target.
Sterling continues to be propped up by the Bank of England’s caution and rapidly falling inflation in rival economies. Andrew Bailey and co will not be popping any champagne corks just yet, particularly as Rachel Reeves gears up to deliver her first Autumn budget a month from now.
The UK’s Halifax house price index rose for the seventh consecutive month in September to 3.2% year-on-year. Income growth and falling borrowing costs have supported buyer appetite and boosted costs.
Here’s what to look out for this week…
A pair of Chinese manufacturing studies will be in the spotlight after the economic stimulus measures announced last week. Monday starts fast with German and Italian inflation data for September before a speech by Jerome Powell in the evening.
The eurozone’s own inflation figures are set for Tuesday. US markets will be busy in the afternoon with ISM manufacturing PMI and the latest JOLTs job openings report.
The middle of the week is a quieter time, punctuated by Nationwide’s UK house prices survey and US ISM services PMI. Friday ends with non-farm payrolls and unemployment data from across the Atlantic.
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: More to run?
When will sterling’s successes run out of steam? Not soon according to some major banks (look out for more on this in our upcoming forecast) who have raised their pound projections for the rest of 2024. Downside risks to this giddy optimism are significant, particularly ahead of next month’s budget.
GBP/USD: the past year
EUR: ECB under pressure
The ECB faces a tricky October interest rate meeting. Recent inflation data will be used as evidence of the need for a cut but the hawks are arguing for a pause. Christine Lagarde faces a tough balancing act, particularly as she ruled out signposting future policy in the same way Jerome Powell tends to do.
GBP/EUR: the past year
USD: Backed up by data
For those who may have questioned the Fed’s tactics, the recent 0.5% cut to interest rates was vindicated (at least in part) by rapidly falling inflation data. Given the study’s ensuring popularity with policymakers, the US dollar fell as markets expected more cuts would soon follow.
EUR/USD: the past year
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