By Noam Bennaiche
Sterling is heading for its fourth monthly loss against the Euro, but managed to gain slightly against the US Dollar, as markets remained focused on upcoming US economic data and political developments.
In the UK, both the services and manufacturing PMI figures came in well below expectations. While the services sector still shows modest growth, the manufacturing downturn is deepening. Overall, recent data suggests the UK economy is losing momentum.
August’s pending home sales also surprised to the upside, rising 4.0% month-on-month compared to forecasts of just 0.3%. Still, uncertainty around US fiscal policy continues to weigh on Dollar sentiment.
Gilt yields remain near multi-decade highs, reflecting investor concerns over the Labour government’s ability or willingness to close the fiscal gap. Additional tax hikes in the upcoming Autumn Budget this November are looking increasingly likely.
Sterling’s main source of support remains the UK’s relatively high interest rates; the highest in the G10. However, this is a double-edged sword, as it signals that the UK is facing stagflation-like conditions. This limits the Bank of England’s ability to stimulate the economy without risking turmoil in the bond market.
On the currency markets this morning, the Nationwide house prices index rose by 0.5% this month, exceeding both the forecast of 0.2% and last month’s increase of 0.1%. This should be positive news for the Pound, which could benefit from both a stronger housing data and the current situation in the United States. Traders are watching US economic indicators, including job data, for direction. A stronger-than-expected JOLTS report could boost the dollar.
However, the US government ground to a halt overnight as Democrats pushed for an extension of health benefits, triggering a shutdown. The last shutdown occurred in between 2018 and 2019 during the Trump administration and lasted 35 days, caused by a dispute over immigration.
In August, US job openings increased while hiring slowed. The crucial upcoming jobs report, expected at the end of the week, will most likely be delayed because of the shutdown. As a result, the US Dollar weakened against major currencies this morning, with the Dollar index slipping 0.2%. Make the most of your money and schedule a chat with your consultant today.
What to Watch This Week
WED
10.00 EUR Consumer Price Index
13.15 USD Employment change
THU
09.15 CHF Inflation Data
12.30 USD Jobless claims
FRI
10.40 EUR ECB President Lagarde Speech
13.30 USD Unemployment rate & non-farm employment change
14.20 GBP BOE Gov Bailey Speaks
15.00 USD PMI data