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Fewer people were walking to work last month in the UK
The pound weakened against most of its main pairs yesterday after the UK’s unemployment rate hit its worst since the pandemic and pay rises eased.
Sterling’s losses were fairly modest at half a cent or so against the euro, and not across the board as commodity backed currencies the Norwegian krone and Australian dollar weakened by even more, but they did wipe out all the gains that GBP/EUR had made since the beginning of the month and returned to a position perilously close to a two-year low.
Although there has been some clawback overnight, the currency markets were selling sterling in reaction to the increased possibility that the Bank of England (BoE) will restart cutting interest rates before year-end, and that risk for sterling remains.
Two opposing views are on display on the subject. Alan Taylor, one of the nine BoE interest-rate setters, highlighted the risk that the UK economy faces a hard landing in its efforts to cut inflation. He said they should cut interest rates.
But he was effectively contradicted by an International Monetary Fund (IMF) report that the UK will actually be one of the fastest growing major economies next year, and its focus should remain on beating inflation. Objectively, you might think that the IMF’s views would carry more weight than Taylor’s, but they don’t have a vote at the next BoE meeting on 6th November.
The US dollar was also hit overnight by the same issue, this time a more dovish tone from US Federal Reserve chair Jerome Powell, who noted that “the downside risks to employment have risen” and interest rates may be cut again next month in response.
Also influencing the market, the Economic Sentiment Index from the Centre for European Economic Research (ZEW) improved for Germany – albeit rather insipidly and less than the markets expected. But it shrank to its least optimistic for five months for the eurozone as a whole. This was blamed on the ongoing budget dispute in France.
In business news, the IMF also warned – following the BoE last week – that risks of a global financial crisis are higher, due to AI (artificial intelligence) stocks which they say look overvalued – much like the disastrous dot.com bubble of the 90s.
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 Account manager on 020 3918 7255 to get started.
GBP: Markets in jittery mood
The pound has been buffeted by central banker comments on both sides of the Atlantic in the last 24 hours, weakening yesterday but making up some – but not all – ground overnight. Tomorrow it’s the turn of economic data in the form of Gross Domestic Product (GDP, i.e. the size of the UK economy). After flatlining last month, will there be any signs of growth?
GBP/USD past year
EUR: Bounce-back against dollar
After falling for most of the month, EUR/USD staged a recovery yesterday, gaining half a cent in the afternoon session and holding onto it despite disappointing mood music from a ZEW report. We’re getting some final inflation data through shortly, but the markets will be more interested in a host of European Central Bank monetary policy-makers setting forth their thinking on interest rates today.
EUR/USD past year
USD: Significant falls following Powell comments
There is wall-to-wall red on the charts for USD today following pointed comments from Fed chair Powell on the loosening labour market. If it leads to lower borrowing costs President Trump and business will be happy, but the currency markets took fright.
USD/GBP past year
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