Currency Note

Pound stable against euro despite real wages fall

By Alex Bennett August 16th, 2022

Over the course of Monday the pound lost value against the US dollar while gaining around a third of a cent against the euro. That has been pared back a little this morning, but new jobs data has so far failed to excite the markets. However, sterling is now at a three-week low against the dollar.

There were no significant data releases in the UK yesterday, but this morning we have heard that UK unemployment remains steady at 3.8%. While incomes have risen ahead of expectations, by 4.7% excluding bonuses, this is well below rising prices, indicating a declining standard of living. Grocery prices as surveyed by Kantar this morning are rising by 11.6% per year.

In business news the oil price has fallen to its lowest level since the Ukraine war started in February. Not just good news at the petrol pumps, it could limit general inflation too.

However, it’s less good news for the commodity-backed currencies such as the Australia dollar, also being affected by the Chinese economy slowing down again. Data yesterday showed that Chinese consumers are spending less than expected, house prices are falling and industrial production has slowed.

In political news, leader of the opposition Sir Keir Starmer has outlined Labour’s plans for tackling the cost of living crisis.

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GBP: Pound in different trajectories against USD and EUR

The pound dropped again against the US dollar, by over 0.50% over the course of the day, while strengthening by a similar amount against the euro. It has all been going slightly south this morning, however.

Data released today by the ONS reveals that while wages are raising fast, with bonuses taking salaries up by 5.1% per annum, with inflation currently almost double that the squeeze on incomes is continuing.

The ONS also revealed that job vacancies have fallen.

It’s a super-busy week for data, with inflation tomorrow, and both Gfk Consumer confidence and Retail sales on Friday.

A poll of 50 economists from Reuters has predicted that the Bank of England will raise interest rates by 50 basis points again next month, taking interest rates to 2.25%.

GBP/USD past year

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EUR: Euro stages recovery in early trading

Despite falling sharply against the US dollar and marginally against sterling yesterday, the single currency can take some comfort from a better performance this morning.

There was little data to interest the markets yesterday, but German wholesale prices fell by 0.4% in July, against market expectations.

Later today we’ll get the ZEW Economic Sentiment Index for August, for Germany and eurozone, with both expected to be severely negative.

USD: Dollar on the rise as China’s economy falters

The dollar was the big winner yesterday, perhaps benefitting more from poor economic data from China than any great strength in its own economy. It gained nearly 1.5% against the Australian dollar, around 1% on the euro and Canadian dollar and 0.60% against sterling.

The was despite the poor data on American manufacturing, with the New York Empire State Manufacturing Index at a shock -31 against an expected reading of 8. This is the lowest reading since May 2020.

While China’s house prices are falling, in the US they have been rising by around 20%. Much of that rise has been forced by a shortage of houses to buy, so the data on housing starts for July will be interesting, this afternoon. In June 2022 they were marginally fewer than June 2021 but that is expected to change for July to around 1.57 million.

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