020 7898 0500
The pound's losses continued
Sterling weakened by up to 1% against major rivals yesterday before and after the Bank of England (BoE) announced the first pause in interest rate rises since November 2021.
Against the euro, sterling hit its lowest since May and against the US dollar its lowest since last March.
This morning it has weakened further against the US dollar, but strengthened on the euro as a blizzard of new data continues to shift the dials.
From yesterday, however, the key interest rate stays at 5.25%. This follows on from the surprise fall in UK inflation as revealed on Wednesday, and the US Federal Reserve (‘the Fed’) keeping its own interest rate on hold at 5.5%.
However, like the Fed, which pointed to a robust US economy and said that it felt confident in the economy being able to withstand more monetary tightening if required later in 2023, governor of the Bank of England Andrew Bailey said: “Inflation has fallen a lot in recent months, and we think it will continue to do so. That’s welcome news. But there is no room for complacency. We need to be sure inflation returns to normal and we will continue to take the decisions necessary to do just that.”
In further economic news, this morning we have had a much more positive reading for optimism in the UK, with the GfK Consumer Optimism coming down to -21. Although still negative, it is the best reading for over 18 months.
Retail sales also recovered, growing 0.4% in August as the sun came out. This, nevertheless, represents a fall of 1.4% year on year, which is more of a reduction than the markets predicted.
Interesting news from Europe, where a flash reading for the Purchasing Managers’ Index (PMI) shows French business leaders’ optimism collapsing, well below the level expected, while Germany’s has improved. See our EUR round-up for more details.
In business news, the real life Succession took a new direction, with Rupert Murdoch stepping down as chairman of Fox and News Corp and giving the reins to his eldest son, Lachlan.
In politics, the Conservative Party has seized on their opposition leader Sir Keir Starmer’s comments about wanting closer ties with the EU. Starmer had said: “We don’t want to diverge, we don’t want to lower standards,” which levelling up secretary Michael Gove said was tantamount to wanting to: “return us to the EU effectively.”
We can expect more of this, with an election now only a year or so away.
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 Trader on 020 3918 7255 to get started.
GBP: Pound drops as BoE takes foot off brake
Sterling has lost 1.35% against the dollar in the past week and 1% against the euro, as a cooling economy allowed the BoE to take its foot off the brake after 14 consecutive interest rate rises.
This morning there has been a mass of data including consumer confidence (improving) and retail sales (rising, but less than hoped). Shortly we will hear PMI results for manufacturing and services, plus CBI Industrial trends.
After a long run of data there is little to excite the markets next week until Friday, with a final result for GDP, as well as house prices from the Nationwide.
GBP/USD past year
EUR: Euro recovers as economic data mixed
The euro had a stronger day, climbing as much as 0.5% against sterling and the Australian dollar.
The economic data is coming thick and fast this morning, with a final result for Spanish GDP uprated to 2.2% year on year.
There is a lot of PMI data too, and so far we have heard manufacturing at 43.6 for France and 39.8 for Germany and services at 43.9 for France and 49.8 for Germany. While anything below 50 denotes a more pessimistic outlook overall, comparing it to pre-release expectations it seems fair to surmise that German policymakers will be happier with the result.
Next week kicks off with Germany’s Ifo Business Climate.
USD: Choppy day for dollar
The dollar surged in the morning but fell back in the afternoon, wiping out most, but not all, of its gains. It also fell sharply against the Japanese yen.
This morning so far there has been more chopping and changing with no clear direction.
Flash readings for PMI will be out mid-afternoon UK time – is the mood better in the US than in Europe and the UK?
Monday will be a little light on data, but Tuesday brings house price information.
For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business trader on 020 3918 7255 or your Private Client trader on 020 7898 0541.
