By Ashley Finill
This week has been a torrid one for Sterling, as the currency has been up against it due to the UK’s continued poor economic performance. Midweek, the inflation figure in the UK stagnated from last months reading and as a result sterling continued to slide against the majors. This morning, retail sales figures for September have been posted and it’s much of the same in the way of economic negativity for the UK, as a recorded figure of -0.9% was announced showing that people aren’t spending in the high street as the cost-of-living crisis continues to grip the nation. Sterling has seen little support since the Bank of England paused on interest rate hikes, and now with this week’s poor reading for inflation and retail sales could there be another interest rate hike to come to the aid of the UK economy? Next month’s BoE meeting is a nail biter for Sterling, as previous hikes have heavily supported the currency against the majors and once that support was taken away, Sterling began to slide. Since then, The pound has seen a drop of 1% against the Euro and 0.8% against the US Dollar. GBP/EUR is now trading at the lows last seen in May and with this morning’s negative retail sales figure for the UK, Sterling has again started to slide, losing nearly half a cent already in this morning trading. Should you have a Euro requirement today and next week it may be prudent to contact your currency consultant so that minimise your risk of any further drops.
Double By-Election Win for Labour Rocks the Tories
Overnight the conservative party had another night to forget at the latest by-elections as Labour swept the floor with them, overturning two majority votes which is being hailed a political earthquake struck in the Conservative Party after winning 2 strongly held seats from the Tories. Nadine Dorries’ held Mid-Buckinghamshire since 2005 with the party having the seat since 1931 and Tamworth formerly held by Chris Pincher who resigned due to misconduct in office fell to Labour which had been a Conservative constituency since 1945. Labour’s wins in the Mid Bedfordshire and Tamworth by-elections overnight mean that swings of over 20% have taken place in by-elections in the last three years. This is an unprecedented pattern in recent political history. Five of those eight swings have taken place in the last four months. This is now a stark warning to the Conservative party that come 12 months’ time, their time could now be up. As we have seen in the past with Brexit and anything that is uncertain in UK politics has hugely negative impact on Sterling, 2024 will be a real test for the currency and a volatile one, watch this space.
Fed Coy on Interest Rate Hikes
Yesterday Afternoon Federal Reserve chair Jerome Powell held a speech and spoke about the current state of the US Economy and what action, if any, the Fed may take to come to its aid. Powell said that the Central Bank may need to raise rates should financial data come in “hot”. He also said, “the Fed is trying to weigh two goals against one another, It wants to wrestle inflation fully under control, but it also wants to avoid doing too much and unnecessarily hurting the economy”. The US Economy has tightened considerably of late, and this may have a bearing on future decisions regarding interest rates. The current US interest rate sits at 5.5%, should the Fed opt to increase the rate again, this will certainly have an impact on the currency market, the next FOMC meeting will be held on November 1st.
Data Remaining Today
With it being a Friday, there is little data of note but a couple to be aware of to close out the week. Retail sales will be released in Canada at 1.30pm which is expected to contract to -0.3% to 0.3%. Later Fed FOMC member speaks at 2pm which could give more insight on their thinking of interest rates in the US.