Currency Note

Sterling slips as Bank of England steps in

By Alex Bennett October 11th, 2022

Sterling oscillated wildly against the euro and US dollar yesterday in an interesting day for the British economy; one which ended the day with sterling left largely unchanged against the euro but around a third of a cent down on the dollar.

This morning sterling has softened again, despite learning today that unemployment fell again last month to a new multi-decade low and the BRC retail sales monitor grew by 1.8% in the year to September, well ahead of expectations.

Wages have risen at a record rate, but slower than prices are rising.

Yesterday there was a sell off in UK government bonds which sent borrowing costs up and 30-year gilt yields on 4.68%. The Bank of England said it would increase the pace of bond buying.

There were moves in the Treasury, with the chancellor Kwasi Kwarteng promising to publish the medium-term fiscal plan and official forecasts forward from the planned date in late November to 31 October.

A former chair of the US Federal Reserve, Ben Bernanke, won the Nobel Prize for Economics yesterday.

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GBP: Jobs up, wages up, but standard of living still down

It was an indecisive start to the week for sterling, with very marginal gains on the euro but losses against USD.

The Bank of England stepped in to calm the markets yesterday, and the chancellor has brought forward the official forecasts of the effect on the mini-Budget to 31 October. It’s been revealed that £100million was withdrawn from British property funds in the wake of the mini-Budget.

The Australian dollar, having a torrid day on the back of slowing demand for Australian exports to China, lost almost 1% against sterling.

There were no data releases of note yesterday, but so far today we have had falling unemployment, although a mixed picture overall, and wages which have grown at 5.4%, in line with expectations, in the year to September.

Retail sales grew by 1.8% in the year to September according to the British Retail Consortium (BRC).

GBP/USD past year

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EUR: Dearth of data leaves euro in reactive mode

It was a mixed day for the single currency, weakening against the pound very slightly, and against the US dollar by rather more. However, against the Australian dollar and renminbi there was a positive movement.

It’s another quiet day on the wires today, indeed it’s a quiet week, although several ECB interest rate setters are speaking.

USD: Dollar strengthens across the board

The dollar had a positive day yesterday, despite the lack of any data releases. It strengthened against all of its major rivals, including by around a third of a cent against the pound and euro, and by over 1% against the Australian dollar.

Several members of the Federal Reserve’s interest rate setting committee have been speaking. Both Charles Evans and Lael Brainard were clear that inflation was the enemy and unemployment was a price worth paying in defeating it. However, separately, they both indicated that they could see prices were beginning to moderate. More central bankers will be talking today and tomorrow.

Other than that, there will be readings of consumer inflation expectations and economic optimism today, then the Producer Price Index (PPI) tomorrow.

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