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On Andy Burnham’s first day in parliament as Prime Minister he was reminded by the Leader of the Opposition that the job isn’t as easy as it may look from the outside. Sure enough, he was welcomed by debt costs surging to their highest since 1998 as investors demanded greater returns for lending to governments already wrestling with inflation and heavy debt loads.
The strength of the pound won’t have been a major worry for the new PM – a nation’s currency is no longer seen as a vital sign of its general economic virility – but if it is for your business or overseas property/retirement plans, yesterday might have been concerning. There were small falls against the US dollar and those currencies pegged to it and a continuing slow decline (‘softening’ in trader parlance) against the euro.
Other indicators of the UK’s economic health yesterday included recovering house prices according to the Nationwide (up 0.2% on the month, 1.6% year-on-year), shop price inflation accelerating to 1.5% year-on-year (with food prices up 2.8%) and non-food prices rising at their fastest since early 2024.
However, leading the global mood are once again the implications from the conflict in the Middle East, as Iran has gone on the offensive overnight. Oil prices have risen again, with yesterday’s eurozone inflation figure already at an unhealthy looking 3.3% and unemployment rising to 6.4%.
Tomorrow and Friday we get final results for the Purchasing Managers Index (PMI), but it feels as though the pieces are being put into place for big decisions from central banks on interest rates mid-month, from the new UK government on its autumn Budget, and possibly the US government as it approaches the Midterm elections.
It could be an exciting autumn on the currency exchanges, but if excitement is the last thing you want when it comes to your money, please contact your account manager.
GBP: Pound lives to fight another day
August was reasonably kind to sterling, gaining overall including close to 2% on the Swedish krona and Japanese yen, but barely moving against the euro. That suggests that our economies have similar problems – too much debt, inflation and reliance on oil at a dangerous time, and too little growth. This morning we have final results for Services PMI. It had been in rude health in its flash reading – but will that have survived the full result? On Friday the governor of the Bank of England Andrew Bailey will be speaking, perhaps addressing some of those concerns as the next interest rate decision hoves into view, two weeks away.GBP/USD: the past year
EUR: Euro on back foot after inflation
The euro has struggled the past month against the commodity backed currencies while gaining on the safe-haven currencies (yen, Swiss franc etc). And against the US dollar and pound, barely moved at all. After yesterday’s inflation news helped to depress the single currency it’s a quieter day today, before final PMI results tomorrow.GBP/EUR: the past year
USD: Middle East and Fed expectations support dollar
The US dollar has been boosted by a risk-off mood as renewed fighting against Iranian forces sent the oil price to its highest since June. On top of that are rising bond yields and a growing expectation that the Federal Reserve will raise interest rates. Markets are now putting an interest rate hike at a 68% probability – twice that of a week ago, before the Jackson Hole symposium. Coming up tomorrow is Services PMI but the main event, as ever at the start of the month, is Non-Farm Payrolls on Friday.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.
