Currency Note

Pound weakens in early trading

By Christopher Nye August 26th, 2022

Sterling strengthened over the course of yesterday against the euro and US dollar. This morning that has reversed against all currencies, as UK households face huge energy bills.

The week ends quietly for data releases in the UK. In the US, however, the Jackson Hole Economic Symposium continues, with an important talk from Federal Reserve chair Jerome Powell.

Ahead of that, US jobless claims were shown to be declining yesterday, despite the economy as judged by GDP falling by 0.6% between April and June.

In the eurozone, minutes from the most recent meeting of the European Central Bank (ECB) showed that it is worried about the fall in the euro, as it fell to parity with the US dollar.

GfK consumer confidence was lower for the German economy this morning, at -36.5 even worse than the 31.3 predicted and well down on last month. French consumers, using a different measure, are also pessimistic, but less so than last month.

The UK’s energy price cap has been increased by 80% to £3,549, meaning a significant increase in household energy bills.

Next week is a Bank Holiday Monday and then a relatively quiet one for data, but does mark the end of the Tory leadership race, with a new prime minister in 10 days’ time.

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GBP: Pound weakens amidst general lack of fizz

Sterling is falling against the euro and the dollar at the end of the week.

Yesterday there was a leap in  the CBI distributive trades survey in August, from -4 last month to +37, with retailers reporting overall growth and with higher expectations for next month too. Despite this, market sentiment was pessimistic overall, with retailers reporting low investment expectations.

Car production also rose, by 8.6% in July, signalling the end of the global chip shortage. However, this remains close to half the pre-Covid level.

There are also fears from UK pubs about a lack of CO2 available. The boss of the British Beer and Pub Association said the timing of the news “couldn’t be worse”.

GBP/USD past year

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EUR: Euro strengthens against sterling

The singe currency lost almost across the board yesterday, but just managed to keep its nose in front of the US dollar. It has since strengthened this morning, despite record low levels of optimism among German consumers.

On the wires yesterday, German Ifo Business Climate for August was 88.5, slightly up on expectations. The final result for German GDP in Q2 was also better than forecast, with a year-on-year growth of 1.7%.

So far this morning we have had GfK Consumer Confidence for September of -36.5 for Germany, a record low and well down both on expectations and last month. Results for French consumer confidence were a little better.

USD: Powell prepares to outline plans on rates

Yesterday’s GDP figures were slightly better than expected, but still showing a fall in Q2 of 0.6%. Despite this, most other data was more positive, including jobless claims falling.

All ears will be on Jackson Hole at 3pm UK time today, when Federal Reserve chair Jerome Powell will outline his thoughts on monetary policy and the challenges facing the US – and hence the global – economy.

Before that we’ll be hearing personal spending and income for July, both of which are expected to decline marginally from June.

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