09/08 – Dollar back in the driving seat

Jeremy Thomson-Cook
Jeremy Thomson-Cook 09 August 2021

GBP: Johnson/Sunak headlines a distractions

EUR: Should continue to weaken

USD: Strong payrolls number adds to bullish case

Sterling

You know it’s a quiet start to the week when the main story in sterling markets is a front-page rumour around a fall out between Prime Minister Johnson and Chancellor Sunak. Were the article to be true and Sunak to be removed from his post, sterling would likely decline on the announcement; Sunak’s response to the pandemic and the noises he has made in speeches since have been market positive.

It would also highlight PM Johnson as even more of a loose cannon.
Following last week’s Bank of England meeting and the slightly hawkish hint that has emerged from the press conference, we have to highlight Thursday’s GDP announcement as a measure that could further allow for sterling strength, particularly against the euro.

We would not be surprised if GBPEUR hit up as high as 1.19 in the coming weeks.

Euro

With the dollar running higher following the payrolls report on Friday, it was always going to be a tough session for the euro. Despite some comments from ECB member Weidmann on Sunday saying inflation could accelerate above 2% in the coming months, the euro remains very much in the doldrums and should help contribute to both a higher GBPEUR and a lower EURUSD in the coming sessions.

USD

Friday’s jobs number was hot from the US and goes to show that the US economy is actually doing really well at the moment. While the headline number of an additional 943,000 people finding work in the past month is obviously good news, the fact that this came with an average wage increase suggests that the strong household spending drive that has been so crucial for US GDP is set to continue.

Dollar didn’t immediately strengthen in response but did so over the course of the US session and has continued a little bit into today.

This should continue if our belief that wage increases mean companies having to pay more to attract and retain staff finds its way into consumer baskets. In that circumstance and barring a Covid-induced slowdown of growth we should see the Federal Reserve move to reduce their stimulus by the end of the year.

This could be announced as soon as the end of this month.

Elsewhere

Sliding crude prices and rising Covid cases are still putting the hex on the Australian dollar and it has fallen overnight once again. As we move closer to the next Reserve Bank of Australia meeting (Sept 7th) we could easily further pressure exerted on the currency on the belief that the current position of the central bank on reducing stimulus is untenable.

Have a great day.

Market rates

Today’s Interbank Rates at 06:48 against sterling. Movement vs yesterday.

Euro €1.178 
US dollar $1.387 
Australian dollar $1.886 
South African rand R20.32 ↑
Japanese yen ¥152.9 ↑