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The US dollar carried all before it yesterday, gaining 0.75% against the pound. The dollar index’s nine-week high, despite the Federal government shutdown with no end in sight, seems mainly based on higher bond yields in the US and a hawkish tinge to recent Federal Reserve comments, albeit with a 25 basis point cut in interest rates still expected at the Fed’s next meeting at the end of this month.
The hawks have been flying on this side of the Atlantic too, with both Bank of England chief economist Huw Pill and Monetary Policy Committee (MPC) member Catherine Mann indicating they are unlikely to support a rate cut at their own interest-rate setting meeting on 6 November.
There may be some relief on the horizon for the MPC however, as a report from KPMG says that wage growth has fallen to its lowest since March 2021, indicating that a serious contributor to the UK’s high inflation is on the wane.
Other than interest rates, a key driver of sterling exchange rates is the fate of stock markets, with which sterling tends to move in lock step. So it was worrying to hear Jamie Dimon, CEO of Wall Street bank JPMorgan Chase say in a BBC interview that he believed a serious stock market crash is a distinct possibility within the next two years. It follows similar warnings from the Bank of England that AI stocks may be overpriced not unlike the dotcom bubble of the 90s.
In property news, there was a report yesterday that record numbers of UK buy-to-let landlords are forming themselves into companies for tax reasons. Via a company they can deduct mortgage interest.
It’s been a slow week or two for the pound, especially against the euro, with little in the way of data for the markets to get excited about. However, that changes next week, with all the big numbers coming out – unemployment, earnings, inflation and GDP.
So 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 Account manager on 020 3918 7255 to get started.
GBP: Sterling sinks
It was a sea of red for sterling yesterday as it lost as much as 0.75% (against the US dollar) against major rivals. Next week takes us into the big data releases, beginning with employment and earnings on Tuesday.
GBP/USD past year
EUR: Mixed day for euro
The single currency lost some 0.6% against a resurgent US dollar, and not much less than that against the rupee and renminbi. The main event at the start of next week is the ZEW Economic Sentiment Index on Tuesday.
EUR/USD past year
USD: Dollar on the up
The US dollar gained between 0.25% and 1% against major rivals yesterday, with the best results against a depressed Norwegian krone and the British pound. We’ve got the Michigan Consumer Sentiment index coming out this afternoon.
USD/GBP 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.
