By Simon Eastman
Yesterday saw the pound start off on a positive note, with the release of employment data.
The average earnings figures beat forecasts and the unemployment rate was lower than markets predicted, coming in at 3.5 percent, compared to a negative expectation of minus 0.75 percent. Unfortunately the claimant count (those signing on for job seekers benefit) rose more than was anticipated showing 25,500 more people signing on, compared to the expected 2,270, a vast difference. Despite the contrasting figures, the pound spent most of the day making ground across the board, taking a cent from the euro and nearly 2 cent against the greenback.
The pound continued to do well even as news broke that the Bank of England had yet again intervened in the ailing bond market, buying up inflation linked debt, in addition to its intervention the day before, in a bid to tackle “fire sale dynamics” which could destabilise the UK economy as gilt markets plunged for a second time. Being long term investments, these are meant to be some of the most stable options out there, so the recent volatility is of serious concern. The intervention helped stop the 4 day losing streak and the pound to find some buoyancy.
That was until BoE chief Andrew Bailey spoke at a convention in Washington late in the afternoon. As UK markets closed, he commented on the promise to buy £10 billion worth of bonds, every day this week to help stabilise the economy, but in a stark warning, told funds to prepare themselves and sort their portfolios out by the end of the week as that would be it. No more help, despite the calls from fund managers to extend the help throughout the month. As a result, the pound plummeted, reaching 2 week lows against the single currency and sinking to single figures against the USD.
This is a key resistance level for the dollar and could lead to a further slide to levels nearer the bottom we saw a couple of weeks ago after the mini budget came out and Asian markets reacted drastically the following Monday.
We have UK GDP figures this morning, plus trade balance and industrial/manufacturing production figures, with inflation yet to come next week for the UK. Add US Fed minutes this evening and today is full of market moving releases, so make sure to stay in contact with your currency consultant to help guide you through what is likely to be continued volatility.
If you have a currency purchase coming up and want to free yourself of the stress caused by the current climate, talk to one of the team about a forward contract, which allows you to fix the rate for up to two years with just a small initial down payment. You can make multiple drawdowns over the course of the contract and have the peace of mind the rate is fixed and won’t change regardless of what happens with currency markets. Call the team today to discuss further.