Sterling continues to keep its head up against the euro this week with the Bank of England seen to be more likely to raise rates in the face of rising gas and fuel prices than the European Central Bank. We personally think neither will but that the Bank of England is more than happy to not tell markets that just yet.
Political news was thin on the ground yesterday. PM Johnson’s speech was more after-dinner than policy driven, and markets paid little attention to the goings on in Manchester.
A recovery in stock markets today may also help support the pound although equity volatility has been high of late.
A Russian pledge to help lower gas prices via increased supply may not be worth the paper it’s written on but it’s helping the euro in the short term. As we have noted above, whilst inflation may be rising it makes little sense for the ECB to change tack on interest rates yet and we believe that the single currency remains in a downtrend as a result.
A precedent has been set for intervention against energy price rises; Poland yesterday hiked interest rates in a bid to protect the economy against the increased cost of fuel.
The Thursday before a payrolls number can be a quiet affair and while we have energy price issues, Covid-19, debt ceiling negotiations and corporate profit warnings all hitting headlines this morning, it makes sense that things are starting to consolidate ahead of tomorrow’s unemployment report from the US.
While not explicitly a pre-cursor to the number, yesterday’s ADP release was also strong and has certainly upped expectations that the US jobs market remains a lot stronger than its counterparts elsewhere.
A strong number tomorrow is almost certain to boost the USD.
News that some Senate Republicans are happy to extend the US debt ceiling temporarily may hurt the USD a little today although should that news cause US yields to rise, then USD buying could continue.
A slight move in US political circles to moving an immediate showdown on the debt ceiling has helped risk currencies around the world, with commodity currencies outperforming notably. While gas and oil prices are a little lower than they were at the beginning of the week, they are still elevated and are generating some support for local currencies. AUD, NZD, NOK, RUB and IDR are all higher this morning.
Today's Interbank Rates at 08:51 against sterling. Movement vs yesterday.
|US dollar||$1.359 ↑|
|Australian dollar||$1.867 ↓|
|South African rand||R20.29 ↓|
|Japanese yen||¥151.6 ↑|
Have a great day.