020 7898 0500
Oil fell as the US and Iran indicated they had made progress in discussions to reopen the Strait of Hormuz.
The pound and euro both stumbled to their weakest in two months in the face of a resurgent US dollar yesterday. Interest rates and inflation have continued to dictate proceedings this week, but the eyes of the world were on New York as hopes grew that a diplomatic solution to the energy crisis could soon be struck.
Iran’s offer to resume the flow of oil through the crucial Strait of Hormuz within a week helped push the oil price below $100 per barrel for the first time in two weeks. President Trump described discussions as productive, although his musings on whether to ‘annihilate’ the nation or strike a deal after November’s midterm elections exemplified the muddled outlook for currencies.
Andy Burnham had his first meeting with the president yesterday. Hot on the heels of agreeing to support Saudi Arabia in its fight against the Houthi insurgents, Trump described the prime minister as a ‘natural businessperson’, although recent strains in Anglo-American relations suggest this fuzzy mood won’t last forever.
Tuesday was relatively quiet away from the political noise in New York. Stock markets made some polite gains, while gold also benefitted slightly from the more constructive tone.
Next month’s autumn Budget looks increasingly challenging for new chancellor John Healey. After public borrowing (i.e. the gap between what the government spends and what it earns in tax receipts) widened substantially in August, several experts believe his scope to announce new spending without raising more taxes to be essentially zero.
Over the course of the next hour or so, both the UK and Germany will report purchasing manager indexes (PMI) for their key sectors. This data is likely to have a material impact on the exchange rate, as it is widely viewed as a leading indicator of economic growth.
GBP: Tough Budget hampers pound
Yesterday's government borrowing statistics were a blow for the pound. Sterling has now slipped by almost two cents against the US dollar in a week, another slide on Tuesday partly the result of the government borrowing billions of pounds more than expected in August. Currency markets will look to this morning's sector data for new direction, but the pound remains under serious pressure.GBP/USD: the past year
EUR: Key German data arrives
We'll get the all-important manufacturing PMIs and a pair of significant consumer and business surveys for Europe's largest economy in the next 48 hours. The euro might well be affected if the recent German elections dented confidence, along with the more positive scenario in which government stimulus increases output.GBP/EUR: the past year
USD: Riding high
This week has very much belonged to the US dollar. After last week's rate hike and the expectation that inflation would require even more restrictive policy, the US dollar has made ground despite easing energy costs that have disproportionately impacted a number of its key rivals. Federal Reserve officials have supported that momentum with a string of hawkish comments since the start of the week.USD/GBP: the past year
For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business account manager on 020 3918 7255 or your Private Client account manager on 020 7898 0541.
