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Sterling bounded upwards to its strongest against the euro since mid-July yesterday and far above where it has spent most of the past 18 months.
There are positive reasons for that and less positive. On the plus side, the British economy appears to be in a better state than previously thought. At least as far as growth goes, with GDP (Gross Domestic Product) rising at the fastest pace in the G7 in the first half of the year. Moreover, while total GDP has previously been rising, albeit slowly, that could largely be put down to high immigration, whereas now it is rising per person (“per capita”) too.
That makes the Budget coming up at the end of this month fractionally less problematic. But the position of GBP/EUR says more about the weakness of the euro, now at its lowest point against the US dollar for 17 months. It has weakened by as much as 1.5% in the past 24 hours against other leading currencies as France’s finances have been under the microscope and bond yields have surged. And that’s not just a problem in France.
The cause of many of Europe’s problems – oil prices – have moderated a little over the past week, but the market is still reeling from Wednesday’s sharp rise in eurozone inflation, now up to 3% in France, 3.3% in Germany, 4.2% in Italy and an alarming 4.9% in Spain. We will get the overall eurozone position shortly.
But while this looks like a good day to buy euros – or book a forward contract – yesterday wasn’t a good day to look at your shares. The FTSE100 had its worst day since May as the falling value of government bonds let to sharply rising yields (what governments have to pay to service their debts). US government borrowing costs hit their highest since 2002.
The big economic data release today will be Non-Farm Payrolls in the USA, but it is bond yields and the rising costs of already massive government debt in the USA, France and the UK that is the bigger worry.
GBP: Positive start to Budget month
The pound may have gained on the euro but it has weakened against most other currencies, including by 1.4% against the Swiss franc (CHF) and 0.65% against the Japanese yen – both regarded as “safe haven” currencies. Coming up this morning we have some early inflation predictions from the Bank of England’s Decision Maker Panel, then final results for the Purchasing Managers Index (PMI) results next week.GBP/USD: the past year
EUR: Bond and inflation worry hit euro
It was a torrid day for the euro yesterday as France’s budget problems came to the fore, with losses against all-comers including 1.5% against CHF and 0.5% against USD. We are about to get the overall inflation figure for the eurozone and it does not promise to be pretty, despite the European Central Bank having raised interest rates twice in recent months. How is business viewing that? We’ll get final PMI results on Monday.GBP/EUR: the past year
USD: Dollar looks to payrolls data
The dollar lost 1% against its safe-haven rival the Swiss franc yesterday while gaining strongly on the euro and a little on the pound. Rising Treasury yields have pulled demand towards the US dollar, even as the underlying reason for those higher yields – inflation and expensive energy – is uncomfortable. All eyes will be on Non-Farm Payrolls at 1.30pm (UK time) – it being one of the monthly numbers genuinely able to move the currency markets.USD/GBP: the past year
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