Currency Note

Sterling takes a dive while UK house prices climb

By Sharyh Murray-Francis September 7th, 2022

The pound to euro rate has fallen today despite the pound gaining fresh strength following Liz Truss being appointed Britain’s new prime minister. Sterling has also weakened against the dollar today after shooting up in what analysts call a “knee jerk reaction” the electoral news on Monday.

In her first speech as PM yesterday, Liz Truss made efforts to fuel the nation with optimism following the  economic headwinds the UK continues to face. Truss doubled down on her determination to “rebuild our economy” so that the country can become “the modern, brilliant Britain” Truss she knows “it can be.”

In the eurozone, as well as the tightening squeeze on gas supplies, higher borrowing costs are on the horizon for the eurozone. The European Central Bank’s interest rate decision will be announced tomorrow and markets are expecting the ECB to lean towards a 75 basis point increase in an attempt to control the eurozone’s soaring inflation

As central banks endeavor to tackle soaring inflation, the US will hear three key speeches from members of the Federal Reserve today. The first will be from president and CEO of the Federal Reserve Bank of Richmond, Tom Barkin at 2pm, followed by Loretta Mester, the CEO of the Federal Reserve Bank of Cleveland, and finally by the Fed’s Vice Chair Lael Brainard.

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GBP: sterling weaker against both currencies

The pound to euro rate has fallen today despite the pound gaining fresh strength following Liz Truss being appointed Britain’s new prime minister. Sterling has also weakened against the dollar today after shooting up in what analysts call a “knee jerk reaction” the electoral news on Monday.

This morning markets saw new data from the latest Halifax house price index (both MoM and YoY). The house price index MoM decreased to -0.10% in July, but was expected to rise rapidly to 0.8 this morning. House prices have increased but figures were slightly disappointing for markets as the index only rose half of that, to 0.4%. No surprises from the YoY data however, as house prices were expected to make a gentle decrease from 11.8% to 11.5% this morning and did exactly that.

In her first speech as PM yesterday, Liz Truss told the UK it could “ride out the storm” of what is the worst economic crisis in a generation. Truss also vowed to take action “this day and everyday” to transform Britain into an “aspiration nation”.

In her attempt to fuel the nation with optimism following the many economic headwinds the UK continues to face, Truss doubled down on her determination to “rebuild our economy” so that the country can become “the modern, brilliant Britain” Truss she knows “it can be.”

GBP/USD over the past year

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EUR: euro to sterling rate stronger while euro weakens against the dollar

The euro is weaker against the dollar this morning amidst the gas crisis and growing interest rate concerns. In addition to the squeeze on eurozone gas supplies following Russia’s decision to switch off the euro area’s main gas pipeline in response to sanctions, higher borrowing costs are on the horizon for the eurozone.

The European Central Bank’s interest rate decision will be announced tomorrow and markets are expecting the ECB to lean towards a 75 basis point increase in an attempt to control the eurozone’s soaring inflation.  Later this evening eurozone market watchers will be listening closely as member of the ECB’s supervisory board, Kerstin af Jochnick, will speak at 6:30pm.

USD: Dollar rate continues to strengthen against both currencies

This morning the dollar continues to find fresh strength against both currencies following eurozone inflation fears and continued economic headwinds for the UK. This also comes ahead lots of interesting data releases which will be announced today.

A key release today will be the latest Balance of trade data which will be announced at 1:30pm. Markets will be keeping a close eye on this data and are expecting the trade deficit to narrow, but this time to a gentler -$70bn compared to July’s -$79.6bn.

As central banks endeavor to tackle soaring inflation, America in particular will hear three key speeches from members of the Federal Reserve today. The first will be from president and CEO of the Federal Reserve Bank of Richmond, Tom Barkin at 2pm, followed by Loretta Mester, the CEO of the Federal Reserve Bank of Cleveland, and finally by the Fed’s Vice Chair Lael Brainard.

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