By Kian Songra
This week ends with the pound reaching new heights against both the Euro and Dollar. With little UK data to report, this week’s economic calendar presented a flurry of Euro and US data. These various figures have propped the Pound, into 31 month highs on both its major peers.
Yesterday marked a pivotal moment for global financial markets as Federal Reserve Chairman Jerome Powell and European Central Bank (ECB) President Christine Lagarde provided much anticipated updates on their respective monetary policies. Their comments sent ripples through the FX market, offering fresh insights into the direction of interest rates, inflation, and economic growth across the US and Europe.
The Fed’s recent 0.5% rate cut raised concerns in global markets, with some fearing it signals a looming US slowdown. However, Fed Chair Jerome Powell stressed that the double cut was a pre-emptive measure to sure up the labour market, not a reaction to recession risks.
Thursday’s US Durable Goods Orders and Initial Jobless Claims strengthened the Fed’s stance, both exceeding expectations. Durable Goods Orders for August came in flat at 0.0% MoM, beating the forecasted 2.6% drop, though down from the previous month’s 9.9% gain. Initial Jobless Claims for the week ending September 20 printed at 218K, better than the expected 225K and easing from the prior week’s revised 222 K. This being said, the Pound continued to hold its strength over the Dollar. Attention now turns to Friday’s personal consumption expenditure (PCE) inflation data, a key test for last week’s Fed rate cut.
Tomorrow Spanish and French inflation are released, with both readings set to fall from their previous by 0.2%. Economic sentiment is also printed at 10am, which is a key indicator of economic health, measuring confidence levels. Across the pond in the US, the personal income and spending figures are released as well as the Michigan consumer sentiment report. The Michigan Consumer Sentiment Index is a key economic indicator that measures consumer confidence in the U.S. economy. It reflects households’ optimism about personal finances, employment, and business conditions. A higher reading suggests stronger consumer spending, which is crucial for economic growth. Positive sentiment usually strengthens the USD, as it signals a healthy economy and the potential for less aggressive interest rate cuts moving forward. Conversely, weak sentiment can lead to USD depreciation, signalling economic concerns and pressures for monetary easing.
Monday sees the UK’s GDP figure which is expected to grow to a reading of 0.9%. Investors will be turning their heads to this last key data release for the month, looking to see how the Pound heads into October. Most notable for those with the Sterling in hand moving into next week, could be the releases of German and Eurozone inflation figures. If inflation seems to be above the target level, this could indicate the ECB holding off potential interest rate cuts. This could cause the Euro to strengthen over other major currencies and possibly cause a retraction from the two and a half year highs on GBP/EUR.
Those with upcoming requirements should consider your options to possibly take advantage of the recent highs. Discuss with your dedicated currency consultant, ways to mitigate your risk and remove the unknown variables ahead of your purchases. With growing tensions in the Middle East, an upcoming October budget and a US election looming, forward contracts allow you to fix the rate ahead of your requirements, removing the risk of your property cost changing with the currency markets.