Sterling’s price drifted over the course of last week against the euro and is now well over 1% weaker than last Tuesday. Against the US dollar, this morning the picture is a little better, with last week’s losses beginning to be reversed, yet GBP/USD is still at the lowest for two and half years.
The key reason for sterling’s fall was the speech by US Federal Reserve Chair Jerome Powell on Friday, which has led to a “risk off” attitude in the markets, where they search for safer assets in a time of stress for the global economy. The pound is seen as a riskier asset these days.
Following yesterday’s bank holiday, the last week of the summer holidays will see few data releases of note from the UK side. There is a sense of statis in UK politics as the country waits to see who the 160,000 or so members of the Conservative party have chosen to be the nation’s prime minister. The result will be announced on Monday and then either Liz Truss or Rishi Sunak will start work that day.
He or she will have plenty in their in-tray. According to Goldman Sachs, the UK will be in recession by the end of the year and will remain there for the entirety of 2023. This is a sharp reversal of its previous prediction of a 1.1% growth next year, and echoes the Bank of England’s own forecasts.
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GBP: Sterling collapses to new low against US dollar
Sterling fell sharply on Friday, bedding in the losses from earlier in the week and driving the pound to its lowest point since the beginning of summer against the euro.
Yesterday sterling dipped below $1.17 for the first time since the start of the pandemic in March 2020, and for similar reasons – a risk-off mood that is seeing investors flee less safe assets such as sterling. GBP/USD has recovered a little this morning, but remains close to its lowest point for a generation.
It’s a relatively quiet week for data, but later this morning we’ll have mortgage approval data, then house prices from the Nationwide on Thursday.
There is also a final reading for S&P Global manufacturing PMI which surprised the markets with 52.1 in the ‘flash’ reading and could potentially change.
GBP/USD past year
EUR: Single currency powers ahead against sterling
The euro strengthened sharply against the pound last week, and that continued through Monday when the UK exchanges were closed.
Against the US dollar a choppy week ended with some support for the single currency, although it remains marginally below parity.
Yesterday was a quiet start for data in the eurozone, but so far today we’ve heard that Spanish inflation is marginally lower than expected (10.4% against an expectation of 11%). Of more interest to the markets will be German inflation, being released at lunchtime, and French inflation tomorrow.
Shortly we will hear a measure of economic sentiment in the eurozone, which is expected to have fallen in the past month.
USD: Dollar hits new heights against sterling
The dollar gained fresh strength against sterling last week following Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Economic Symposium on Friday.
Powell has committed the Fed to controlling inflation despite the likelihood of “some pain” to the US economy. That is likely to cause some pain elsewhere too, and the first casualty was sterling. This morning, however, a little of that shine has come off USD/GBP and it is currently around 0.5% below yesterday’s high water mark.
Against the euro, the greenback is currently a little lower than this time last week.
The big data release today will be JOLTS Job Openings for July, expected to dip below last month’s 10.7million, as the pain that Powell spoke of starts to bite. The week will end with Non Farm Payrolls.