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The pound marched on towards multi-year highs on Monday.
The pound started the week by making further advances on the euro and the US dollar. GBP/EUR and GBP/USD are now both within a whisker of their highest in thirty months, with the pound’s strength driven by a complex web of economic data, risk appetite and central bank outlooks.
It’s not since the spring of 2022 (when the war in Ukraine had just begun) that sterling has traded this high against its rivals. Currency market veterans will know that it is far from certain this will persist as we move into a busy schedule to end the year.
News that UK services PMI came in below forecasts in September was a slightly puzzling data accompaniment to sterling’s climb. Despite undershooting expectations, the services sector reported its eleventh consecutive month of expansion.
While the UK’s figures fell, they still registered above a neutral 50, which was more than could be said for the equivalent German study. The Hamburg Commercial Bank (HCOB) study put German manufacturing PMI at 40.3 in September, below forecasts of above 42. Most troubling was perhaps the fact that new orders fell by the highest amount in a year.
“Manufacturers are downright depressed about their future activity, with expectations for the coming year plummeting” commented Dr Cyrus de la Rubia, HCOB chief economist commented. “This rapid downturn in sentiment is most likely linked to the wave of negative headlines surrounding Volkswagen, which has cast a shadow over the broader industry.”
For German chancellor Olaf Scholz, bad news on the economic front was tempered by a close political escape. Despite trailing heading into the vote, Scholz’s SPD party narrowly defeated the far-right AfD in the Brandenburg state elections. These elections could be a dry run for the crunch federal vote that looms next year.
Nationwide has announced it will allow first-time homebuyers to borrow up to six times their household income. The move comes amid a “price war” with other lenders looking to attract customers as interest and mortgage rates fall.
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GBP: Higher still
The pound’s march continued on Monday, with GBP/EUR and GBP/USD each reaching their highest in around 30 months. The risk for sterling is that the structure that supports it, which currently includes a disparity in interest rate approach between central banks, begins to fall apart.
GBP/USD: the past year
EUR: Hanging on
Despite struggling against the pound, EUR/USD has held up well of late. A fall yesterday afternoon may be foreshadowing, as the euro continues to labour with weak economic data.
GBP/EUR: the past year
USD: Digesting the news
US dollar markets continue to embrace the new reality of significantly lower rates from the Fed. A number of policymakers made speeches yesterday, with several highlighting progress towards “immaculate disinflation”.
EUR/USD: the past year
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