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Britain's economy is facing new and dangerous challenges, the chancellor said (William Barton / Shutterstock).
UK chancellor Rachel Reeves used a speech yesterday to unveil several significant policies designed to overcome challenges she framed as the death of globalisation.
Citing the ongoing oil crisis and Russia’s invasion of Ukraine, Reeves warned that an interconnected global economy left the country vulnerable to supply chain shocks. Her wide-ranging remarks also touched on the economic impact of Brexit, the need to adopt AI at pace and plans to devolve certain tax and spend powers from the Treasury to local government.
In what was a calmer day across financial markets, sterling strengthened by the best part of a cent to its best level since Thursday afternoon against the US dollar. The pound to euro rate was again rangebound for the most part ahead of interest rate decisions tomorrow. An improvement in risk appetite meanwhile saw gains for global software companies.
The most significant data point was the German ZEW economic sentiment survey, which plummeted from 58.3 in February into negative territory. That marked its third largest month-on-month fall ever, dwarfed only by the covid-19 lockdown and the outbreak of the Ukraine war.
Markets are in limbo at the moment due to the ongoing crisis in the Middle East. Key oil indices remained above $100 per barrel throughout Tuesday as efforts to restart the flow of shipping traffic in the strait of Hormuz fell flat.
After his efforts to persuade allies to join the fight, President Trump yesterday afternoon claimed the US no longer wanted or needed Nato assistance.
There may well be more exchange rate movement as the flow of economic data picks up in the back end of the week. The US will provide PPI data and the latest Fed decision today, before UK unemployment data precedes the Bank of England and the European Central Bank’s votes tomorrow lunchtime.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 3918 7255 to get started.
GBP: Attention on the split
Thursday’s Bank of England decision will be closely watched to see just how much the policy outlook has shifted. Governor Andrew Bailey is likely to warn of the implications of oil prices on inflation and the job market, but will the number of votes for a hold change the pound’s course?
GBP/USD: the past year
EUR: Fraught times ahead
Tomorrow’s European Central Bank decision is arguably the most intriguing of this week’s packed interest rate schedule. Markets are pricing in another hold and the euro has held steady in recent days. It will be materially impacted should Christine Lagarde signal a shift from the previously stable outlook.
GBP/EUR: the past year
USD: Hiring momentum slows
New hires in the American private sector averaged just 9,000 per week across February, well down from the previous month. The US dollar is now looking to this evening’s interest rate decision (one of the last of Jerome Powell’s tenure) from the Federal Reserve to provide more direction.
EUR/USD: the past year
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