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The Federal Reserve's interest rate strategy continued to dictate markets on Tuesday.
The pound enjoyed a better day on Tuesday, climbing steadily by half a cent against the euro and the US dollar across the session. That progress masked a broader instability for sterling as talk of interest rate cuts and risk sentiment spread.
EUR/USD struggled to contain outflows ahead of a speech by the Federal Reserve’s Raphael Bostic and FOMC minutes later in the week. The US dollar continues to be supported by geopolitics and the impression that the Fed’s cuts will be shallower and slower than previously thought.
On a day of light economic news, attention turned to China, which unveiled a new package of stimulus measures on the back of last week’s announcement. This time around market reaction was less exuberant, as the more modest set of measures failed to inspire confidence that the government would do all it could to prevent a downturn.
The German trade surplus widened to over €22bn in August, well above forecasts of €19bn. This is the largest surplus since May, driven by an unexpectedly large increase in exports and a fall in imports.
There are just weeks to go before UK chancellor Rachel Reeves delivers the autumn budget. Investors say she must walk a “tightrope” between promoting growth and balancing the books, pointing to the growing spread (i.e. the difference) between the yield of UK and German government debt as a sign of the market mood.
You can read more about Rachel Reeves, Keir Starmer as well as Donald Trump in our latest Quarterly Forecast from tomorrow (10 October). Keep your eyes fixed on your inbox to learn how all this could affect your budget before the year is out.
The Office for National Statistics (ONS) reported the fastest annual growth rate in UK population since 1971. According to the ONS, Britain’s population reached 68.3mn in mid-2023, a 1% increase from the year before. News that deaths outnumbered births for the first time in 50 years highlights the UK’s increased reliance on immigration to maintain population growth.
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GBP: Shoots of green
The pound’s tentative recovery yesterday marked the first sign of a market correction. Sterling has a long way to go but it could benefit from a rethink over interest rates and any improvement to the situation in the Middle East.
GBP/USD: the past year
EUR: Seeking direction
Following this morning’s German data, the euro now faces a pretty quiet spell on the macro front. Investors will be hoping it can find something to cling onto as the UK and the US dissect key reads.
GBP/EUR: the past year
USD: Minutes to midnight
Tonight’s publication of FOMC minutes are a precursor to Thursday’s key inflation data. US dollar markets are looking firmly to this set of data to inform their next move.
EUR/USD: the past year
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