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Sterling was left flatfooted as inflation expectations surged in Europe and the United States.
Sterling opens the new week on the back foot against the US dollar as the threat of high inflation continued to dominate proceedings.
The dollar meanwhile benefitted from a booming set of jobs data before the weekend, which showed the economy added more than 100,000 additional jobs than expected in August. Unemployment also held steady, in theory boosting the odds that the Federal Reserve would feel able to raise interest rates at its next meeting. It should be noted that President Trump argued for the opposite course of action on his Truth Social platform.
We’ll have to wait until next week to hear the latest decisions from the Fed and the Bank of England. The European Central Bank (ECB) is expected to announce its second rate hike of the year when Christine Lagarde and co step up first on Thursday lunchtime.
For the UK, the main highlight will be July’s preliminary GDP release. Currency markets will be watching closely for signs that a historically hot summer, coupled with England’s performance in the World Cup, boosted economic activity after strong performances back to back.
Most of this week’s action is focused on Europe and the United States, however. German trade figures are due tomorrow, while the US economy reports inflation data along with the influential Michigan consumer sentiment study on Friday.
Germany’s far-right Alternative für Deutschland (AfD) secured a major win in Saxony-Anhalt on Sunday. Chancellor Friedrich Merz’s party secured just 17% of the vote, and while the AfD will likely fall short of achieving a complete majority in the regional government, it piles more pressure on the unpopular Merz as he attempts to kickstart a sputtering economy.
And there was still time for a little political intrigue at home, too. Several of Reform UK leader Nigel Farage’s senior advisors left their roles before the weekend after a sting investigation into the source of its donations. Farage acknowledged the allegations ‘didn’t look good’ but denied any laws had been broken.
GBP: Looking for positives
Sterling came under pressure last week, as the global bond rout briefly threatened to eat into the gains it has made since the start of the year. While it was able to avoid a truly terrible outcome, any positive drivers for the pound are few and far between at this moment.GBP/USD: the past year
EUR: Homing in on Thursday
The euro strengthened against the pound last week, but with attention now focused on the ECB’s decision on Thursday, that rally could lose steam should policymakers opt for a surprise hold. A quarter-point hike to 2.5% is the odds-on outcome, you just can’t ever rely on anything in currency markets.GBP/EUR: the past year
USD: Blockbuster payrolls
The Federal Reserve’s so-called dual mandate means it is tasked with both controlling prices and ensuring full employment. The second part of that was resoundingly answered on Friday, so the market reaction on Friday was understandable. As we’ve often seen this year, a good day can easily be wiped out by any number of headlines.USD/GBP: the past year
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