By Kian Songra
This week has seen the pound renew its strength and continue its buoyancy on both the Euro and Dollar. After last week’s poor Non-Farm Payroll data for the US, the Pound has held strength after the Dollar began to claw back its losses, but the overall sentiment is that the Dollar is currently experiencing selling pressure.
Following the release of the mixed UK employment report for the three months ending in July, the Pound increased in value relative to its major rivals. The UK Office for National Statistics (ONS) reported strong labour demand, and the wage growth moderated broadly in line with predictions. This news led to a strengthening of the Pound.
The Unemployment Rate decreased as predicted to 4.1% from the previous publication of 4.2%, according to the agency. Employers in the UK employed 265K new employees, a substantial increase above the 97K previously released. Strong job growth has historically increased the Bank of England’s (BoE) hawkish bets. Yesterday as anticipated, Average Earnings Excluding Bonuses registered at 5.1%, marking the lowest value in the last two years in comparison to the previous report of 5.4%.
Tuesday evening saw Donald Trump and Kamala Harris exchange in their first televised debate. Trump seemed to have been on the back foot defending his corner after personal digs seemed to have rattled his cage. However, there was no clear knockout blow, that has seemed to have changed the trajectory of the White House race that still remains too close to call. Across today’s trading session, the comments and investors’ sentiment may impact the global currency market. The US presidential debate can have a significant impact on currency markets, particularly on the US dollar, as it provides insight into the economic and fiscal policies of the candidates. Currency traders closely watch these debates for clues about potential shifts in trade, taxation, or spending policies that could affect the broader economy. A candidate’s stance on issues such as inflation, interest rates, and international relations can influence market sentiment, leading to increased volatility. If the debate introduces uncertainty or concerns over economic stability, the dollar could weaken, while clear pro-growth policies could strengthen it.
This morning’s UK GDP figure has come out at 0%, showing no growth for the UK economy. This release was anticipated to come out at 0.2%, increasing from the previous 0%. Another month without growth presents a challenge for the new Labour government, which has made boosting the economy a priority. We have also seen a shock announcement in industrial and manufacturing production readings. Industrial production has been shown to have decreased to -0.8%, with a predicted release of +0.3%, whilst manufacturing production decreased to -1% after an anticipated increase to +0.2%. These weak data releases could cause the Euro to gain back its losses and put pressure on the Pound. Throughout the day’s trading session, we could see investors’ sentiment towards the UK economy changing and therefore there may be increased volatility in the markets.
Remaining data for the week
All eyes turn to the European Central Bank’s (ECB) interest rate decision tomorrow. The consensus is that there will be a 25bps cut, which could cause the euro to weaken against its major peers. With the Euro under pressure, could we see the pound retest the peak of 2-year highs? This being said, with the market, possibly pricing this anticipated release ahead of time, we may not see as much movement as opportunists may expect.
Investors will be keeping an eagle eye on the ECB press conference 30 minutes after the release, in which various policymakers will be giving an insight into its upcoming plans. If the ECB surprises the market with a hawkish tone and takes a cautious approach, the euro could gain on the Pound. Next week we see two further major interest rate decisions, here in the UK and across the pond in the US. With this in mind, it will be prudent to stay in close contact during this period, with our friendly team to ensure you look at the possible options to remove any unknown risk.
The latter half of the week sees a flurry of important data releases for the US. On Wednesday we have the Core Inflation reading which is set to be unchanged at 3.2%. On Thursday, the Producer Price Index (PPI) and Initial Jobless Claims readings are released. These releases will influence the Fed’s highly anticipated interest rate decision next week. Expectations for Federal Reserve easing have stabilized, with the likelihood of a 50 basis point rate cut this month dropping to 25 basis points. The market continues to anticipate 100-125 basis points of easing by the end of the year, with no Fed speakers scheduled until Chair Powell’s press conference on September 18. The Michigan consumer sentiment is released on Friday, which measures consumer’s thoughts on their own personal finances and on the wider economy’s short and long-term outlook.
With the Pound in and around the 2-year highs against both the Dollar and Euro, discuss the various options to take advantage of the current rates by securing your currency ahead of time. With critical interest rate decisions next week, a UK October Budget on the cards and an upcoming major US election, it could be prudent to stay in close contact with the team to consider minimising your risk ahead of time. Your dedicated currency consultant is available to discuss your options and requirements, so don’t hesitate to get in touch.