Worst two days for GBPUSD for 12 months

Jeremy Thomson-Cook
Jeremy Thomson-Cook 30 September 2021

GBP: BOE not as bullish as before

EUR: Watch for German inflation

USD: Keeps on pushing higher

Sterling

Governor Bailey’s conversation with other central bankers yesterday was not as hawkish as expected with the head of the Bank of England tempering his language on the strength of the UK recovery a little. Rate rise expectations remain set for the early part of next year which we continue to see as unlikely and are therefore providing an underserved strength to sterling.

GBPUSD has had its worst two day move in just under a year with some looking for a fall as low as 1.31 before it can start to rebuild.

We certainly think that there is more weakness to be seen. Yesterday’s move was once again more of a dollar story than anything and sterling has a lot of negative factors swimming around its performance at the moment.

Euro

Last month, as soon as a strong inflation number came out of Germany hawkish central bankers were all over it, claiming that this was enough of a reason to think about withdrawing stimulus for the European economy. Today the latest iteration of German inflation is released and we expect it to be higher still.

Should those same forces come out and make similar noises, the euro could be in for a supported day. As it stands currently however it has been made to bow down to the all-conquering USD; a strong figure may allow it to bite back against the strong dollar but also push higher against GBP.

USD

The dollar pushed further onwards yesterday and some indicators of USD strength now have it sat close to its strongest level in over a year. While we have got to this point without any new inputs since last week, we believe that we will need to see more from the US economy and/or the Fed for the USD to make another concerted push higher.

Resolution of the arguments around the debt ceiling could help, as could a strong jobs report a week tomorrow. We may see a slight pull back for the USD in the coming days but there is a lot more room for it to run higher still if news flow goes in its way.

Elsewhere

Are we ready for a turning point in the AUD? Rumours suggest that Covid-19 lockdown measures may be given an end date soon in Australia. Such a move would likely prompt a move higher for the currency, which has not been able to benefit from higher commodity export prices in recent weeks.

Market rates

Today's Interbank Rates at 08:57 against sterling. Movement vs yesterday.

Euro €1.157
US dollar $1.343
Australian dollar $1.864
South African rand R20.28
Japanese yen ¥150.4

Have a great day.