Currency Note

Pound stabilises post conference

By Alex Bennett October 6th, 2022

Sterling fell against the euro and US dollar over the course of yesterday morning, both before and after Liz Truss’s Conservative Party Conference speech. Sterling recovered a little in the afternoon and evening sessions however.

Liz Truss’s first conference speech as Prime Minister was unapologetic about the financial chaos unleashed by the mini-Budget, focusing on the “anti-growth coalition” as she put it, attempting to stymie their plans. Meanwhile, the cabinet was falling out over the plan for benefits to be raised only by the same amount as average earnings, rather than inflation, which is generally higher.

Negatively for households, the typical two-year mortgage deal is now in excess of 6% for the first time since 2008. There was also a report from the IFS that freezes on personal tax thresholds would lose tax payers more than the cuts at the top.

There was some positivity coming down the wires for the British economy, with better than expected PMI and new car sales.

However, those car drivers may face pain at the pumps again, as a cut in oil production by two million barrels a day is raising prices.

Ex-PM Gordon Brown warned about the “shadow banking” system and how resilient it might be in a world of higher interest rates.

Elon Musk’s ownership of Twitter looks to be back on, with the world’s richest person apparently planning an ‘everything app’, including commerce and payments.

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GBP: Sterling survives Tory conference unscathed

Although sterling has recorded a loss against the euro over the past 24 hours, it’s pretty marginal overall and it is safely back to there it was pre-Budget. Similarly with the US dollar.

That was despite some negativity around Liz Truss’s speech and its double-down on ‘Trussonomics’.

New car sales leapt ahead by  4.6% (although September is a traditionally busy month, so no great surprise) and while the S&P Global/CIPS purchasing managers index (PMI) for September was lower than last month, it was still better than expected on 50 and 49.1. Anything over 50 is growth.

We will shortly be hearing Construction PMI for September.

GBP/USD past year

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EUR: Euro beats pound but little else

The single currency fell against all other currencies yesterday – except sterling. The losses against most currencies were as much as 1%.

The main reason was possibly Germany’s Balance of Trade for August, which fell to its lowest since 1992, just €0.6bn against a forecast of €7.3bn. This morning, German factory orders came in at -2.4%, considerably worse than the previous month and expectations.

There were no great surprises in the mass of PMI data across the eurozone. Tomorrow there will be retail sales across the eurozone.

USD: Dollar attempts recovery

The dollar finally had a positive day, strengthening by well over 1% against sterling and a not dissimilar amount against the euro. However, that has been chipped away at overnight and this morning.

One of several members of the Fed’s rate-setting committee speaking yesterday, Raphael Bostic said that they were still in the early days of rate rises: “we are still decidedly in the inflationary woods, not out of them”, and he expected US interest rates to hit 4.5% by the end of the year. More FOMC members will be speaking this afternoon.

The big data event of the week is tomorrow, with unemployment and non-farm payrolls at 1.30pm UK time.

In California, a judge is going to rule on whether a new trial is required for Elizabeth Holmes, boss of the never-working blood-testing device Theranos. Holmes was convicted of defrauding Silicon Valley investors.

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