020 7898 0500
Cameron surprised journalists and the markets with his return to the heart of government (chrisdorney / Shutterstock.com)
The pound gained 0.25% against the euro and a little more against the US dollar in Monday’s session as prime minister Rishi Sunak reshuffled his cabinet. This morning’s unemployment data, and continued rise in earnings above inflation, has further boosted sterling.
Home secretary Suella Braverman was shown the door and David Cameron was appointed new foreign secretary yesterday, making his return to government after resigning as PM in 2016 in the wake of losing the Brexit referendum. This appears to have been welcomed by the markets.
This morning the UK unemployment rate came in at 4.2% in September, no change from August but better than market expectations of 4.3%.
The average salary in the UK (including bonuses) increased by an annualised rate of 7.9% in the three months to September, down on the previous period but, again, well above expectations. The pound has recovered as a result, presumably as the markets view the possibility of yet more interest rate rises as the UK economy proves resilient to the Bank of England’s inflation-busting moves.
In business news, a forthcoming report commissioned by the chancellor Jeremy Hunt will apparently suggest that a new ‘concierge-type’ service is required to attract Foreign Direct Investment (FDI) to the UK. Hunt is keen to counter the efforts of competitors such as the USA, with its $369bn US Inflation Reduction Act.
Communications regulator Ofcom revealed Royal Mail were fined £5.4 million for missing its delivery targets by ‘significant and unexplained margin’ causing customers ‘considerable harm.’
On a lighter note, beauty company Avon, made famous by its door-to-door visits is to open its first UK stores after 137 in operation as an online-only store.
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 Trader on 020 7898 0500 to get started.
GBP: Business confidence at 2023 low
Sterling has strengthened across the board at the start of the week, following what the markets apparently see as reassuring news – centrists taking more power in the heart of government – and a strong labour market continuing, with earnings outpacing inflation.
However, in a report compiled by S&P Global, despite easing inflation, UK business confidence dropped to 37 in October 2023, signalling the softest projections for business activity in 12 months. Non-staff costs and output prices are expected to rise at the slowest rate since February 2021 and strong hiring forecasts keep wage expectations near record levels.
Tomorrow will be the UK’s inflation data, and there is also high level data from the USA and EU, so watch out for sharp market movements.
GBP/USD: the past year
EUR: Strong day for euro (except against pound)
The euro gained against all but the pound yesterday.
There hasn’t been a great deal of economic data for the markets to chew on, but that changes today. Later this morning we will see the latest quarterly GDP figures for the eurozone. If, as expected, this shows negative growth for Europe’s GDP, it could suggest a recession has already begun.
We will also gain insight into Germany and the eurozone’s ZEW economic sentiment. Germany’s is forecast to improve.
USD: Fed to cut rates early?
The dollar was the worst performer of the major currencies yesterday, slipping by 0.35% against the pound.
New interest rate predictions from major banks forecast that the Federal Reserve will make deep interest rate cuts over the next two years as inflation continues to cool. Economists at Morgan Stanley predict the Fed will begin to cut rates in June 2024.
After lunch today, US core inflation figures will be released. The market expects the core rate to increase 0.3% on the month and the annual rate to come in at 4.0%. Headline inflation is forecast to fall from 3.7% to 3.3%, a significant shift closer to the Federal Reserve’s 2.0% target.
