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The pound fell as interest rate chatter increased on both sides of the Atlantic.
Sterling fell back against the US dollar and the euro on Wednesday as renewed speculation ahead of October’s autumn Budget collided with the challenging fiscal picture. John Healey’s first Budget as chancellor is set to arrive amid serious fears that inflation could rise heading into 2027.
Media reports that Andy Burnham is considering tax rises didn’t help the mood. At the same time, generally positive data from the US economy sent the pound to its weakest against the US dollar in over a week.
An unexpectedly strong July for US durable goods orders was the highlight from yesterday’s glut of economic reports. New orders increased by 1.1% month-on-month, easily clearing the 0.5% increase the majority of surveyed economists expected.
At the same time, the closely watched Core PCE index increased as expected by 0.2%. As the Federal Reserve’s favoured measure of inflation, that helped to ease some of the tensions in bond markets, although yields on both UK and US government debt ticked up slightly across Wednesday as the rest of the data suggested underlying inflationary pressures.
It isn’t just in the United States where interest rates are a hot topic. The European Central Bank’s (ECB) Isabel Schnabel, one of the more hawkish voices in the rate-setting committee, yesterday told Bloomberg that she felt another round of rate hikes was more or less inevitable.
Gold and bitcoin hit their highest prices in three months yesterday. A weaker US dollar has pushed investors toward alternative safe-haven assets in recent days. Oil also reversed two consecutive days of declines as concerns around energy supplies lingered, despite reports of a temporary revenue sharing agreement between Iran and Oman.
The first debate in the French presidential election cycle takes place tonight ahead of next year’s vote. The extreme ends of the political spectrum are expected to take centre stage, with the far-left’s Jean-Luc Melenchon suggesting he could cancel France’s debt if he came to power. Government borrowing is set to be a major theme of the election given the country’s recent struggles to negotiate a workable budget.
GBP: Another long build-up
Many in the government are still scarred by last year’s tortuous wait for the autumn Budget. Despite a timeline designed to limit speculation, the pound could be in for a volatile few months as markets try to second guess the new chancellor’s approach.GBP/USD: the past year
EUR: Consumer sentiment hits six-month best
The GfK consumer confidence survey increased to its best score since March, although the -26.6 score still indicated consumers were firmly in pessimistic territory. Income and economic expectations were on the up, but all this was very much framed by high oil and gas prices, as well as the growing sense the ECB will have to hike again to control inflation.GBP/EUR: the past year
USD: A battle with the bond market
This year’s Jackson Hole symposium is a vital moment for the Federal Reserve. With the bond market in chaos and the US dollar being pulled from pillar to post, Kevin Warsh’s performance could go some way to determining whether the dollar escapes for a rocky August with any semblance of stability.USD/GBP: the past year
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