Market Update 20th September – 27th September
Where you will be able to keep up to date with all the latest changes in the currency market
Sterling enters the new week down against both USD and EUR. Sterling gained momentum towards the back end of last week, but this has slowed down and with a flurry of key economic events coming up this week, further volatility is to be expected. There has been recent speculation surrounding the Bank of England increasing the interest rate sooner rather than later, and this decision will be made on Thursday. On top of this we have both manufacturing and services PMI figures coming out on Thursday morning, which is usually a good indication of how well the economy is performing.
Sterling has remained buoyant in recent trading, but recent data suggests the economy has reached an uncertain stage in the recovery process, including Friday’s retail figures that revealed a second consecutive decline in sales for august. However, labour market data has been stronger than ever with UK employment figures returning to pre-covid levels and job vacancies at record highs in July. It’s possible that unemployment could fall further in the months ahead, which would support the wider economic recovery.
Europe’s inflation is lagging that of the UK and that puts more pressure on the Bank of England to act on interest rates and stimulus. But worse for the European Central Bank is that long-term inflation swaps are already pricing in their 2% inflation target. The bank added that hawkish comments could be a risk for the pound versus the euro, saying: “In short, inflation remains a concern, but we doubt it will be enough to stop markets from expecting further ECB easing to be announced in December, even if hawkish headline risk remains ever present as early September has shown.”
The USD index increased to a 4-week high this morning after the Michigan consumer sentiment came below forecasts, raising further uncertainty on when the Federal reserve will start cutting stimulus. Early in the week, fresh data came out and showed that retail sales rose unexpectedly, and inflation slowed more than forecasted.
Many analysts expect the new forecasts to convey expectations for a faster pace of interest rate rises from 2023 because, since June, the U.S. economy has performed stronger than many anticipated, employment has continued to recover from the attempted containment of the coronavirus and inflation has been higher than the Fed expected. The latest non-farm payrolls report delivered only a fraction of the job creation expected for last month, leading many analysts to become more confident the bank would defer any tapering announcement until either of October or November’s meetings. Wednesday’s 19:00 decision and 19:30 press conference are the highlight of the week for the Dollar and in turn will have significant influence on the Pound-Dollar rate ahead of Thursday’s BoE decision, with risk of a stronger greenback that frustrates attempts by Sterling to recover from last week’s losses