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Sterling slid further on Tuesday as the UK awaited the Bank's verdict.
The pound slumped to its lowest level in three weeks against the euro on Tuesday ahead of the Bank of England’s interest rate decision tomorrow lunchtime.
In what was a topsy-turvy day for currency markets, the euro powered ahead on more positive diplomatic signals from the Middle East, although the mood on that front once again turned more pessimistic overnight. The US dollar meanwhile turned in a positive day thanks to speculation around tonight’s decision from the Federal Reserve.
There is plenty of focus still on both the Bank of England and the Federal Reserve, which meet within 18 hours of one another make their latest interest rate decisions. Both will be framed by the Middle East conflict, and while a hold looks the most likely outcome in both situations, few people are discounting the possibility of a surprise hike.
As the UK braces for its fourth heatwave of the year, Andy Burnham is being forced to think ahead to a crucial autumn Budget, slated for some time in late October or early November. The National Institute of Economic and Social Research (NIESR) said increased inflation expectations had shrunk the chancellor’s headroom (i.e. the money available to spend without bumping up against spending rules) from £7bn to around £3bn
It has been a pretty brutal start to the week if you look beyond currency. Chipmakers, whose components are so crucial in facilitating the AI craze, led a host of big-name fallers on the stock markets yesterday. The only saving grace was the dramatic fall in the price of oil, but even that positive development was punctured by the news that the US had intercepted an Iranian attack on its bases, ending the effective ceasefire which had held since the weekend.
GBP: Risk-off for now
After another zigzag month for the inflation outlook, few can blame the Bank of England for playing the wait-and-see game again. Sterling is looking to Thursday’s meeting to provide some direction, but that may ultimately have to come from oil prices and domestic data points.GBP/USD: the past year
EUR: On a roll
The euro has been on something of a roll over the past ten days, zooming ahead against both the pound and the US dollar. The single currency has been one of the biggest beneficiaries of easing tensions in the energy crisis, but it can also point at signals of growth from Germany. Tomorrow represents a test of that strength with growth data from the bloc’s key economies.GBP/EUR: the past year
USD: Finely poised
Last month, the Fed’s new chair Kevin Warsh very hawkish press conference helped send the US dollar on the upward wave it is still riding today. The likely outcome of tonight’s rate decision is still a hold, but investors will be tuning in to see if that tough talk is temporary or a sign of a larger shift.USD/GBP: the past year
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