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Sterling has ended the week in good shape, close to its best against the euro for a year and winning back ground on a US dollar that has suddenly lost its swagger. The reason for all this is playing out on the other side of the Atlantic.
The week’s big moment was the monthly US jobs report, and it was a letdown. American firms took on just 57,000 workers, roughly half what everyone had expected, and the numbers for the two months before were quietly marked down as well. For a dollar that had spent June climbing nicely, this was the first proper wobble.
Why does one jobs report matter so much? Because it feeds straight into the question of interest rates. Under its new boss Kevin Warsh, America’s Federal Reserve had been dropping hints that it might put rates up rather than bring them down, and the dollar had been happily riding along on that idea. A weak jobs number puts a dent in it, and traders wasted no time cooling on the chance of higher American rates.
Oil is helping the mood too. Brent crude has drifted back to about its cheapest since February, as tensions in the Gulf keep calming down and the barrels flow freely again. Cheaper energy takes some of the sting out of inflation, which is exactly what central bankers on both sides of the Atlantic have been hoping for.
Britain still hasn’t got a settled government. Sir Keir Starmer’s exit has left Andy Burnham as the runaway favourite to take the top job, and the markets have mostly made their peace with that after he promised to stick to the current spending rules. The next thing they want to know is who he hands the keys to the Treasury, and we should find out within a fortnight.
So the week closes on a straightforward question. If America’s jobs slowdown is the start of something bigger, the dollar’s long winning streak could be over and the pound and euro may hold on to the upper hand. If it turns out to be a blip the whole picture could swing back just as fast, and the batch of central bank meetings at the end of the month is where that gets sorted out.
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GBP: Borrowed strength for sterling
Sterling's rise has more to do with the dollar tripping up than with any good news at home, and Britain is still waiting to see what its next government looks like. Andy Burnham has settled a few nerves by promising to keep to the current spending rules, but it's his cabinet, and especially his choice for the Treasury, that markets are really itching to see. There are house price figures from Halifax and the surveyors at RICS next week to keep things ticking over.
GBP/USD: the past year
EUR: Euro catches a breather
The euro's little bounce says far more about the weak dollar than any change in its own luck, and it's still hovering near its lowest against the pound for a year. Inflation across the eurozone cooled to 2.8% last month, quicker than anyone thought, so there's some quiet head-scratching about whether the European Central Bank moved too soon when it raised rates in June. A final round of business surveys, which measure how busy companies are, rounds off the week.
GBP/EUR: the past year
USD: Jobs miss knocks dollar
The dollar's June hot streak ran smack into a weak jobs report, and it's been on the back foot ever since. Traders had been warming to the idea of higher American interest rates under the Fed's new chief Kevin Warsh, so a soft jobs figure had them thinking again. With US markets shut for the Independence Day holiday things will be quiet, and the next real test comes from business surveys and the Fed's meeting notes next 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.
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.
