Sterling weakened by around 0.4% against the euro and US dollar yesterday afternoon, but has been recovering ever since against the euro.
The UK unemployment rate for July came in at 4.3% this morning, higher than the 4.2% in June and its highest since 2021. Perhaps more alarmingly for Bank of England (BoE) policymakers, average earnings (with bonuses) shot up to 8.5%. While this was mainly due to public sector bonuses, including to NHS staff, this was the sharpest rise since 2001 when you remove the effect of the pandemic.
Presciently, yesterday Catherine Mann, one of the BoE’s Monetary Policy Committee, said it was too soon to halt the interest rate hiking cycle. She said, “I would rather err on the side of over-tightening. But, if I am wrong, and inflation decelerates more quickly and activity deteriorates more significantly, I will not hesitate to cut rates.”
Ahead of the European Central Bank’s interest rate decision on Thursday afternoon, the markets are betting on policymakers keeping rates unchanged at 4.25%, with a lesser chance of a 25 basis point rise.
In retail, Chair of the John Lewis partnership Dame Sharon White called for a Royal Commission to save UK high streets, arguing that mass store closures, theft and antisocial behaviour are damaging Britain’s town and city high streets.
US inflation rose to 3.6% in August from 3.5% in July, marking the first increase in five months.
The Dow Jones rose almost 200 points on Monday, while the S&P 500 and the Nasdaq added 0.7% and 1%, respectively, led by a rebound in tech shares.
European shares were also boosted yesterday, with Frankfurt’s DAX 40 and the pan-European STOXX 600 both gaining 0.4%.
On a different note, eurozone economic growth was revised lower to 0.8% in 2023, as reported in the European Commission’s Summer 2023 Economic Forecast. This is lower than the previously predicted 1.1% expansion and the decrease in projections is likely put down to high inflation and tight monetary policies which put strain on economic activities.
Later this morning, the latest figures for the ZEW economic sentiment index will be released. Markets forecast a reading of -14 from -12.3 in August, which marked the lowest level since December 2022.
Tomorrow, economists will receive the latest GDP figures for the UK. Markets forecast a 0.3% reduction in July, from a 0.5% expansion in June.
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GBP: Inflation makes autumn tax cuts unlikely
Speaking in India yesterday, chancellor Jeremy Hunt warned the pace of high inflation will prevent pre-election tax cuts in Britain as signs emerge that the Bank of England will raise interest rates next week to ease cost-of-living pressures.
GBP/USD past year
EUR: Steady euro ahead of ECB decision
The euro maintained its position against the US dollar yesterday, not straying far from the three-month low it hit on 7 September. Compared to this time last week, the euro is 0.35% lower against the US dollar and 0.35% up against the euro.
USD: Down against all major currencies on Monday
The US dollar had a poor day yesterday, sinking on the back of a surprise intervention from the People’s Bank of China which confirmed it will prevent ant “over-adjustment” risk in the yuan. The US dollar fell over 1% against the Chinese yuan, Japanese yen and Australian dollar.