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Some exports to the EU increased
There was little movement for sterling yesterday against the US dollar and euro. This was despite a rise in US inflation that took the markets by surprise. Core inflation in the US – the measure favoured by the US Federal Reserve – rose by 0.3% in September, taking it to 3.3% annually, while the overall inflation rate is 2.4%.
That’s down from the previous month’s 2.5% but still higher than expected and reducing even more the chance of a 0.5% interest rate cut from the Fed next month. The dollar sank by around 0.5% against the yen and Aussie dollar but the response against GBP and EUR was minimal, as the smaller rate cut may already be priced in. On the other hand, revealed yesterday: new claims for unemployment benefits in the US were their worst for 14 months.
Yesterday too, UK 10-year bond yields rose to their highest for three months, raising the cost of UK borrowing, as the market consider the chance that the chancellor will need to borrow more for the budget later this month. There are also reports that executives are selling shares in expectation of a large rise in capital gains tax immediately after the Budget.
Speaking of budgets, our October-December Quarterly Forecast was published yesterday. See where the experts believe the pound, euro and US dollar are heading in 2025. Is this the perfect time to protect your budget? Download your free copy here.
This morning we have had a results for Britain’s Gross Domestic Product (GDP) which shows a monthly rise of 0.2% in August. This was broadly as expected and showed growth from July’s flatline.
The UK’s trade deficit shrank to just under £1billion in August, as goods exports surged by 12.9%, mainly due to machinery, transport equipment and chemical exports to the EU.
People will be able to continue heading into the EU easily too, as the EU delayed implementation of its fingerprint and facial scanning system. “It’s clear that we’re not going to be ready for the 10 November,” said EU Home Affairs Commissioner Ms Johansson, adding: “We will be going for a phased approach, step by step.”
Finally, property surveyors in the UK are looking bullish. The RICS House Price Balance measures the gap between the percentage of chartered surveyors seeing rises and falls in house prices. At +11, it was the first positive response since September 2022.
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GBP: Sterling holds up against euro
While the pound essentially moved sideways yesterday, overall it’s been a positive week for the pound against major rivals, with gains of 0.5% or more against all but the US dollar and Swiss franc (CHF).
Next week is a big one for sterling, with unemployment data on Tuesday and inflation widely anticipated to come in at below 2.2% on Wednesday.
GBP/USD past year
EUR: Mixed week for euro
A mixed week for the euro, which fell against USD, GBP and CHF but gained strongly against various other dollars. There’s not a great deal on the data front for Europe until Germany’s ZEW Economic Sentiment index on Tuesday.
EUR/USD past year
USD: Dollar gains from stubborn inflation
A bright end to the week for the US dollar at least, though hardly for the rest of the US economy as core inflation refused to sink to acceptable levels and the hopes of global business for lower interest rates fell with them.
This afternoon we’ll hear Michigan Consumer Sentiment.
USD/GBP past year
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