By Simon Eastman
Thursday, we saw the continued slump in the pound as markets see an ever-increasing split between policymakers’ views.
On Wednesday Bank of England speeches showed mixed views on interest rate cuts, already highlighted from the previous vote, which was then recast, as Andrew Bailey commented consumers are cautious in spending, but he sees further interest rate cuts on the table. In comparison to this, Megan Greene said the Bank should be the cautious ones with their approach to rate cuts, feeling the proposed cut in November should be “skipped”. We had seen this priced in already to some extent, but it is further highlighting the mixed concerns between policymakers when looking at inflationary pressures and the impact on the jobs market.
Markets in the UK also came under pressure from comments made by Manchester mayor Andy Burnham, who is seen as a contender to take the Labour top job from Keir Starmer. He was speaking ahead of the Labour conference, which kicks off in Newcastle this weekend, stating government borrowing should be increased by £40billion to help fund more council houses. Not an ideal scenario when they are already trying to plug a huge black hole in their budget.
Given the issues the current government has juggling the existing debt mountain, comments like this are only ever going to be volatile for the pound, especially when the bond market, the vehicle used to fund govt spending, has seen a decline in uptake recently with gilts continuing to perform badly. This is a major headache for the pound currently, with the budget coming at the end of November, investors are cautious as to how the potential tax raid will impact the economy, but the likelihood of seeing funds pour out of the country ahead of the budget could see a continued decline in the value of the pound over the coming weeks.
The only key releases of note yesterday were US and included durable goods orders, personal consumption, homes sales figures and the important the GDP reading, which showed US growth up from an expected 3.3 percent to 3.8 percent, a significant improvement. Jobless claims were also down significantly on the expected figure, expected to have risen from last month from 232,000 to 235,000 but falling to 213,000 all pointing to positive signs and giving less reason for the Fed to cut interest rates in the manner markets thought they might. This saw GBPUSD drop by over a cent and USDEUR move up over half a cent. For GBPEUR, we saw the rates drop to their lowest level this year before rebounding slightly.
Further turmoil could be seen today as we close off the week with a couple of European Central Bank speeches, the UK quarterly bulletin from the Bank of England and US consumer consumption expenditure price indices which in addition to the GDP reading yesterday will give further hints at the path the Fed may take with interest rates going forward.
Given the current bullish dollar and apparent divisive views at the BoE, we could expect to see further pressure for the pound. Those with sterling in hand are seeing significant drops when buying USD and although more gradual, the levels for buying the single currency are slowly but surely getting worse. For those of you with a requirement coming up over the rest of 2025, now would be a prudent time to look at securing your funds as increasing pressure continues to weigh on the pound. For further analysis and to discuss your options, speak to our friendly team today to help make your money go further.