The pound strengthened yesterday against the euro, while falling further against the US dollar. That has continued this morning.
The big economic story yesterday was the fall in stocks (particularly tech stocks) as the economic picture darkened for the larger economies. On the global stage, Federal Reserve Chair Jerome Powell is due to speak at the Jackson Hole Symposium on Friday, and the dollar has been strengthening on the expectation of further interest rate rises.
There were no high-level data releases from the UK yesterday, but shortly we will be hearing services and manufacturing PMI (purchasing manager’s index) for the UK. It is expected to exceed Germany’s which has just come in at 49.8, suggesting a pessimistic outlook among German business people.
In a report yesterday, financial services firm Citi suggested that the UK cost of living is “entering the stratosphere”, potentially hitting 18% early next year.
From Germany, the Bundesbank warned that inflation could hit 10% and the country faces recession. They said: “Declining economic output in the winter months has become much more likely,” due to the risk to gas supplies.
A similar problem with different causes is afflicting China, where drought conditions have interrupted hydro-electric power supplies and closed factories.
These threats have helped to propel the US dollar to its strongest against the pound for also 30 months and to a 20-year high against the single currency.
In UK politics, the arguments over how realistic are Liz Truss’s tax-cutting economic plans continued, with Michael Gove saying they were a “holiday from reality”.
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GBP: Sterling moves ahead against euro
Over the course of yesterday the pound strengthened against the euro by just over 0.5% as the economy picture for the eurozone appeared to grow worse. That has continued this morning.
No doubt where the pound is going against USD however, to a new post-Covid low.
With no major data releases today it was bad news from the continent that led the pound. However, there was a report from Citi that inflation could hit 18.6% next year.
Shortly we will hear flash readings for PMI from S&P Global, but the next release of note is car production for July on Thursday.
GBP/USD past year
EUR: Gas fears chill single currency
The single currency fell below parity against the US dollar as fears for the European economy this winter grew, and it has remained there this morning.
The euro also fell against sterling, and that has continued this morning. That may change as German manufacturing PMI has just been announced at 49.8, considerably better than market expectations of 47.8. However, anything below 50 indicates net negative attitudes/pessimism.
Later today there will be a eurozone-wide consumer confidence reading, which is predicted to be a new all-time low of -28.6. In a similar vein, Thursday will be Ifo Business Climate.
USD: Dollar in fresh surge
The dollar carried all before it yesterday as the outlook for Europe’s economy fell. It has reached a new 20-year against the euro and post-pandemic high against sterling.
Stocks around the world fell, especially tech and consumer stocks such as Amazon, Netflix and Tesla.
Later today we will hear US new home sales, which are expected to contract, but not by anywhere close to last month’s 0.8% drop.
We will also hear US central bankers talking at the Jackson Hole Economic Symposium from Thursday, with Jerome Powell’s highly anticipated speech on Friday at 10am local time.